<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1997
REGISTRATION STATEMENT NO. 333-7202
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS DOCUMENT IS A COPY OF
THE REGISTRATION STATEMENT FILED
ON JULY 3, 1997.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERCORP EXCELLE INC.
(Name of small business issuer as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
ONTARIO, CANADA N/A 2030
(State or other jurisdiction of (IRS Employer I.D. No.) (Primary Standard Industrial
Incorporation or Organization) Classification Code No.)
</TABLE>
1880 ORMONT DRIVE
TORONTO, ONTARIO
CANADA M9L 2V4
(416) 744-2124
(Address and Telephone Number of Registrant's Principal Executive Offices)
------------------------------
ARNOLD UNGER, CHIEF EXECUTIVE OFFICER
INTERCORP EXCELLE INC.
1880 ORMONT DRIVE
TORONTO, ONTARIO
CANADA M9L 2V4
(416) 744-2124
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JAY M. KAPLOWITZ, ESQ. GREGORY SICHENZIA, ESQ.
ARTHUR S. MARCUS, ESQ. SINGER ZAMANSKY, LLP
GERSTEN, SAVAGE, KAPLOWITZ, 40 Exchange Place
FREDERICKS & CURTIN, LLP 20th Floor
101 East 52nd Street New York, New York 10005
New York, New York 10022 (212) 809-8550
(212) 752-9700
</TABLE>
------------------------------
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
----------------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
----------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT BEING PRICE PER OFFERING REGISTRATION
SECURITIES BEING REGISTERED REGISTERED SECURITY(1) PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock, no par value................................................ 1,150,000(2) $ 5.00 $5,750,000 $1,742.42
Redeemable Common Stock Purchase Warrants................................. 1,150,000(3)(4) .10 115,000 34.85
Common Stock, no par value................................................ 1,150,000(3)(4)(5) 6.00 6,900,000 2,090.91
Underwriters' Warrant..................................................... 100,000 .0001 10 0.00
Common Stock, no par value................................................ 100,000 6.00 600,000 181.82
Redeemable Common Stock Purchase Warrants................................. 100,000(6) .12 12,000 3.64
Common Stock, no par value................................................ 100,000(6)(7) 6.00 600,000 181.82
Common Stock being registered for Selling Securityholders................. 65,000 5.00 325,000 98.48
Total..................................................................... $4,333.94*
</TABLE>
* Filing fee previously paid
- ----------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes up to 150,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(3) Includes up to 150,000 Redeemable Common Stock Purchase Warrants (the
"Warrants") issuable upon the exercise of the Underwriters' over-allotment
option.
(4) This Registration Statement also covers any additional shares of Common
Stock which may become issuable by virtue of the anti-dilutive provisions of
the Warrants and the Underwriters' Warrant. No additional registration fee
is included for these shares.
(5) Represents shares of Common Stock issuable upon exercise of the Warrants
offered pursuant to this Registration Statement.
(6) Reserved for issuance upon exercise of the Underwriters' Warrant together
with such indeterminate number of Warrants and/or Common Stock as may be
issuable pursuant to anti-dilution provisions under the Underwriters'
Warrant or the Warrants.
(7) Reserved for issuance upon exercise of the Warrants obtained upon exercise
of the Underwriters' Warrant.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
The Registration Statement contains two forms of prospectus: (i) one to be
used in connection with an offering by the Company of shares of Common Stock and
Redeemable Common Stock Purchase Warrants (the "Prospectus"); and (ii) one to be
used in connection with the sale of Common Stock by certain selling
securityholders (the "Selling Securityholders Prospectus"). The Prospectus and
the Selling Securityholders Prospectus will be identical in all respects except
for the alternate pages for the Selling Securityholders Prospectus included
herein which are labeled "Alternate Page for Selling Securityholders Prospectus"
and references to the Company's Offering shall be referred to as the "Company
Offering."
ii
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
- ----------------------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover Page of Prospectus............................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors.................. Prospectus Summary; Risk Factors
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... Cover Page; Underwriting
6. Dilution.............................................. Dilution
7. Selling Security Holders.............................. Principal Stockholders and Selling Securityholders;
Concurrent Offering; Alternate Pages for Selling
Securityholders Prospectus
8. Plan of Distribution.................................. Cover Page; Underwriting
9. Legal Proceedings..................................... Business
10. Directors, Executive Officers, Promoters and Control
Persons............................................. Management
11. Security Ownership of Certain Beneficial Owners and
Management.......................................... Principal Stockholders and Selling Securityholders
12. Description of Securities............................. Description of Securities
13. Interest of Named Experts and Counsel................. Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Management
15. Organization Within Last 5 Years...................... Prospectus Summary; Business
16. Description of Business............................... Prospectus Summary; Business
17. Management's Discussion and Analysis or Plan of
Operations.......................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property............................... Business
19. Certain Relationships and Related Transactions........ Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................. Description of Securities; Risk Factors
21. Executive Compensation................................ Management
22. Financial Statements.................................. Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. Not Applicable
</TABLE>
iii
<PAGE>
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
<PAGE>
PRELIMINARY PROSPECTUS DATED JULY 3, 1997
SUBJECT TO COMPLETION
INTERCORP EXCELLE INC.
1,000,000 SHARES OF COMMON STOCK
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to an offering (the "Offering") by Intercorp Excelle
Inc., a Canadian corporation (the "Company") of 1,000,000 shares (the "Shares")
of common stock, no par value (the "Common Stock") and 1,000,000 redeemable
common stock purchase warrants (the "Warrants"), through Sharpe Capital, Inc.
the representative (the "Representative") and Aegis Capital Corporation (who,
with the Representative, are collectively the "Underwriters"). The Shares and
Warrants are being offered and sold separately and will be separately
transferable immediately upon issuance.
Each Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $6.00 per share, subject to adjustment in certain events,
during the four year period commencing on the date of this Prospectus (the
"Effective Date"). The Warrants are subject to redemption by the Company at $.10
per Warrant, at any time commencing one year from the Effective Date (or earlier
with the consent of the Representative) and prior to their expiration, on not
less than 30 days' written notice to the holders of the Warrants, provided the
closing bid price per share of Common Stock if traded on The Nasdaq SmallCap
Market ("Nasdaq"), or the last sales price per share if listed on the Nasdaq
National Market or a national exchange, has been at least 150% ($9.00 per share)
of the current Warrant exercise price, for a period of 20 consecutive business
days ending on the third day prior to the date upon which the notice of
redemption is given. The Warrants shall be exercisable until the close of the
business date preceding the date fixed for redemption. See "Description of
Securities--Warrants".
Prior to the Offering, there has been no market for the Common Stock or
Warrants, and there can be no assurance that a market will develop for the
Company's securities in the future or that if developed, it will be sustained.
The Company is applying for quotation of the Common Stock and Warrants on Nasdaq
under the trading symbols "INEX" and "INEXW", respectively, and for the listing
on the Boston Stock Exchange under the symbols "INX" and "INXW", respectively.
The per share public offering price of the Shares and the Warrants and the
exercise price and the other terms of the Warrants offered hereby were
determined by negotiation between the Company and the Underwriters and do not
necessarily bear any direct relationship to the Company's assets, earnings, book
value per share or other generally accepted criteria of value. See
"Underwriting".
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 7
AND "DILUTION" ON PAGE 16.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share............................................ $5.00 $.50 $4.50
Per Warrant.......................................... $.10 $.01 $0.09
Total(3)........................................... $5,100,000 $510,000 $4,590,000
</TABLE>
(1) Does not include additional consideration to be received by the Underwriters
in the form of (i) a non-accountable expense allowance equal to 3% of the
gross offering proceeds (of which $50,000 has been paid), (ii) any value
attributable to the Underwriters' Warrant ("Underwriters' Warrant")
entitling the Underwriters to purchase up to 100,000 shares of Common Stock
and/or 100,000 Warrants at a price per share equal to 120% of the initial
public offering price per Share and per Warrant, and (iii) a financial
consulting agreement with the Representative for a period of thirty-six
months for an aggregate consideration of $108,000 payable in full on the
closing of the Offering. The Company has granted the Representative a right
of first refusal for a period of two years from the Effective Date for any
public or private offering of securities to raise capital and sale of
securities to be made by the Company, its affiliates or any of its present
or future subsidiaries. In addition, the Company has agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended (the "Act"). See "Underwriting".
(2) After deducting discounts and commission payable to the Underwriters, but
before payment of the Underwriters' non-accountable expense allowance of
$153,000 (or $175,950 if the Over-Allotment Option, defined below, is
exercised in full) or the other expenses of the Offering, estimated at
$322,000 which including the Underwriters' non-accountable expenses) payable
by the Company. See "Underwriting".
(3) The Company has granted the Underwriters an option, exercisable for 45 days
after the Effective Date to purchase up to an additional 150,000 shares of
Common Stock and/or 150,000 Warrants upon the same terms and conditions set
forth above, solely for the purpose of covering over-allotments, if any (the
"Over-Allotment Option"). If the Over-Allotment Option is exercised in full,
the total Price to the Public, Underwriting Discounts and Commissions, and
Proceeds to Company will be $5,865,000, $586,500, and $5,278,500,
respectively. See "Underwriting".
The Common Stock and Warrants are being offered by the Underwriters on a
"firm commitment" basis, when, as and if delivered to and accepted by the
Underwriters, subject to prior sale, and other conditions and legal matters. The
Underwriters reserve the right to withdraw, cancel or modify the Offering and to
reject orders, in whole or in part, for the purchase of any of the securities
offered notwithstanding tender by check or otherwise. It is expected that
delivery of the certificates representing the Shares and Warrants will be made
against payment therefor at the offices of the Representative, 120 Broadway,
28th Floor, New York, New York 10005 on or about , 1997.
SHARPE CAPITAL, INC. AEGIS CAPITAL CORP.
The date of this Prospectus is , 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
WARRANTS OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK OR WARRANTS TO
STABILIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK OR WARRANTS TO COVER
SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK OR WARRANTS MAINTAINED BY
THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING".
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR
SALE UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
THE SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF
THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
2
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
The Company and its officers, directors and auditors are residents of Canada
and subsequently all of the assets of the Company are or may be located outside
the United States. As a result, service of process may be effected upon the
Company through the offices of Gersten, Savage, Kaplowitz, Fredericks & Curtin,
LLP in New York, but it may be difficult for investors to effect service of
process within the United States upon non-resident officers and directors, or to
enforce against them judgments obtained in the United States courts predicated
upon the civil liability provision of the Securities Act or state securities
laws. The Company believes that a judgment of a United States court predicated
solely upon civil liability under the Securities Act would probably be
enforceable in Canada if the United States court in which the judgment was
obtained had a basis for jurisdiction in the matter that was recognized by a
Canadian court for such purposes. However, there is substantial doubt whether an
action could be brought in Canada in the first instance on the basis of
liability predicated solely upon such laws. If investors have questions with
regard to these issues, they should seek the advice of their individual counsel.
The Company has also been informed by its Canadian legal counsel Wildeboer Rand
Thomson Apps & Dellelce that, pursuant to the Currency Act (Canada), a judgment
by a court in any Province of Canada may only be awarded in Canadian currency.
Pursuant to the provision of the Courts of Justice Act (Ontario), however, a
court in the Province of Ontario shall give effect to the manner of conversion
to Canadian currency of an amount in a foreign currency, where such manner of
conversion is provided for in an obligation enforceable in Ontario.
EXCHANGE RATE DATA
The Company maintains its books of account in Canadian dollars, but has
provided the financial data in this Prospectus in United States dollars with its
audit conducted in accordance with generally accepted auditing standards in the
United States of America. All references to dollar amounts in this Prospectus,
unless otherwise indicated, are in United States dollars.
The following table sets forth, for the periods indicated, certain exchange
rates based on the noon buying rate in New York City for cable transfers in
Canadian dollars. Such rates are the number of United States dollars per one
Canadian dollar and are the inverse of rates quoted by the Federal Reserve Bank
of New York for Canadian dollars per US$1.00. The average exchange rate is based
on the average of the exchange rates on the last day of each month during such
periods. On June 30, 1997, the exchange rate was US$1.00 per Cdn$.7241.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C>
1993 1994 1995 1996
--------- --------- --------- ---------
RATE AT END OF PERIOD.................................................. $ 0.7576 $ 0.7143 $ .7353 $ 0.7299
AVERAGE RATE DURING PERIOD............................................. 0.7752 0.7299 0.7299 0.7353
HIGH................................................................... 0.7519 0.7092 0.7299 0.7299
LOW.................................................................... 0.7576 0.7143 0.7353 0.7299
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE
CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" REFERS TO INTERCORP EXCELLE INC.
AND ITS WHOLLY-OWNED SUBSIDIARIES KALMATH INVESTMENTS LIMITED ("KALMATH") A
HOLDING COMPANY, EXCELLE BRAND FOODS CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF
KALMATH, AND INTERCORP FOODS LTD. ALL INFORMATION IN THIS PROSPECTUS, UNLESS
OTHERWISE NOTED, ASSUMES NO EXERCISE OF THE OVER-ALLOTMENT OPTION OR THE
UNDERWRITERS' WARRANT.
THE COMPANY
The Company is in the business of developing, manufacturing, marketing, and
distributing salad dressings, sauces, dips, marinades and mayonnaise. The
Company distributes a line of gourmet salad dressings to supermarkets, gourmet
stores and specialty shops, primarily in Canada, under the name "Renee's
Gourmet-TM-." Salad dressings, dips, sauces, marinades and mayonnaise are also
distributed under the brand name "Excelle" and under private labels for both
retail and food service establishments, including supermarkets, restaurants,
hotels, hospitals, schools and other institutional cafeterias throughout Canada
and the United States. The Company markets over 200 products. Management
believes, based on the number of grocery store chains and gourmet stores that
carry the Company's products, that its products are sold in over 1,500 retail
outlets. Renee's has the largest market share of any refrigerated salad dressing
in Canada according to a recent A.C. Nielsen report.
The "Renee's Gourmet-TM-" line is distributed in most supermarkets in
Canada, including but not limited to A&P, National Grocers, Oshawa Foods and
Provigo. The "Excelle" line is primarily distributed to food service
establishments, including, but not limited to, Scott's Hospitality and Prime
Restaurants. The Company's private labels include Shaw's, Grisanti's, Sobey's,
President's Choice, Master Choice and Wegman's. The private labels are sold
under one of such names or the supermarkets' own name to most supermarkets that
sell the "Renee's Gourmet-TM-" line.
All of the products in the "Renee's Gourmet-TM-" line are primarily made
from natural ingredients and are preservative and MSG free, as well as being low
in sodium. Certain of the Company's products are also designed to serve certain
specific health conscience markets. For example, the Company markets products
which are made without milk, sugars or oils for consumers who are lactose
intolerant, diabetics, or allergy-prone. The Company recently introduced its
"Renee's Gourmet Naturally Light-TM-" line which is low in fat and intended for
the growing diet and health conscience market. Management intends to introduce
an extension of the "Renee's Gourmet-TM-" line which would include low-fat
marinades and sauces, as well as exploring a line of its products to a kosher
designation.
The Company's products are sold to supermarkets in a variety of bottle sizes
and in one gallon containers and individual portion cups and pouches for food
service establishments. The Renee's Gourmet-TM- salad dressings are sold in the
produce section of supermarkets and require refrigeration. Management believes
that it is an advantage to sell its products in the produce section because
fewer competing products are generally sold in the produce section and because
such products naturally complement lettuce and other vegetables sold in the
produce section. Where possible, the Company seeks to display its sauces and
marinades in the meat and poultry sections of supermarkets. The dressings have a
four to six month refrigerated shelf life depending on the particular product.
The Company's strategy is to continue to capitalize on the significant brand
name recognition of its Renee's line by increasing the amount of supermarkets
carrying its products, increasing the amount of products carried by such stores
and to penetrate other geographic markets including the United States. The
Company also intends to acquire or license other existing sauces and marinades
products for marketing through its established distribution network. In
addition, the Company intends to continue to
4
<PAGE>
expand its food service distribution business by entering into agreements with
large restaurant and hotel chains.
Intercorp Excelle Inc. was formed in Canada in April 1997 to consolidate the
business of its three wholly-owned subsidiaries, Excelle Brand Foods
Corporation, a Canadian company, established in 1987 to produce and distribute
products under the Excelle brand name, as well as private label products,
Kalmath Investments Limited, and Intercorp Foods Ltd., a Canadian company,
established in 1985 to distribute products under the Renee's Gourmet-TM- line.
The Company's principal offices are located at 1880 Ormont Drive, Toronto,
Ontario, Canada M9L 2V4 and its telephone number is (416) 744-2124.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ 1,000,000 Shares of Common Stock and 1,000,000 Warrants.
The Shares and the Warrants (sometimes hereinafter
collectively referred to as the "Securities") may be
purchased separately and will be transferable separately
upon issuance. Each Warrant is exercisable at an
exercise price of $6.00 per share. The exercise price of
the Warrants is subject to adjustment in certain
circumstances. The Warrants are exercisable during the
four year period commencing on the Effective Date. The
Warrants are redeemable by the Company commencing one
year from the Effective Date (or earlier with the
consent of the Representative) at a price of $.10 per
Warrant on 30 days' prior written notice provided the
last sales price of the Common Stock for 20 consecutive
business days equals or exceeds 150% of the current
Warrant exercise price. See "Description of Securities"
and "Underwriting".
Common Stock Outstanding
Prior to Offering(1)............ 3,075,000
Common Stock to be
Outstanding After the
Offering(1)..................... 4,075,000
Warrants Outstanding Prior to
Offering(2)..................... 175,000
Warrants to be Outstanding After
the Offering(2)................. 1,175,000
Use of Proceeds................... The net proceeds to the Company from the sale of the
Securities are estimated to be approximately $4,115,000,
after deducting commissions and expenses of the Offering
estimated at $475,000. The Company intends to use the
net proceeds of this Offering for improvements in its
manufacturing capabilities, selling and marketing, the
repayment of certain indebtedness, and for working
capital and general corporate purposes including
potential synergistic acquisitions. See "Use of
Proceeds".
Risk Factors...................... The Securities offered hereby are speculative and
involve a high degree of risk and should not be
purchased by anyone who cannot afford the loss of his or
her entire investment. See "Risk Factors" and
"Dilution".
Proposed Nasdaq National Market
Symbols(3) Common Stock--INEX
Warrants--INEXW
Proposed Boston Stock Exchange
Symbols(3)...................... Common Stock--INX
Warrants--INXW
</TABLE>
- ------------------------
(1) Does not include an aggregate of 500,000 shares of Common Stock reserved for
issuance upon the exercise of options available for future grant under the
Company's Stock Option Plan (the "Plan"), 200,000 of which have been
granted. See "Management-Stock Option Plan".
(2) Includes 175,000 warrants (the "Bridge Warrants") issued in connection with
the Company's May 1997 bridge financing. The holders of the Bridge Warrants
have the right to exchange such warrants into warrants identical to the
Warrants offered hereby. See "Description of Securities-Bridge Warrants".
(3) The proposed symbols do not imply that a liquid and active market will
develop or be sustained for the Securities upon completion of the Offering.
6
<PAGE>
SUMMARY COMBINED FINANCIAL INFORMATION
The summary financial information set forth below is qualified by and should
be read in conjunction with the Combined Financial Statements, including the
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDEDE
YEAR ENDED JANUARY 31, APRIL 30,
--------------------------- --------------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
------------ ------------- ------------ ------------
STATEMENT OF INCOME DATA
Revenues................................................ $ 8,457,288 $ 10,459,655 $ 2,309,733 $ 2,780,557
Gross profit............................................ 2,070,404 2,859,721 604,231 847,999
Income from operations.................................. 412,994 769,772 194,018 226,542
Net income.............................................. 421,431 293,961 73,836 79,153
Earnings per share...................................... 2,107.16 1,469.81 369.18 395.77
Weighted average number of shares outstanding........... 200 200 200 200
</TABLE>
<TABLE>
<CAPTION>
AT JANUARY 31, AT APRIL 30, 1997
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
1996 1997 ACTUAL AS ADJUSTED(1)
------------ ------------ ------------ --------------
BALANCE SHEET DATA
Working capital................................. $ 52,003 $ 367,300 $ 295,015 $ 4,095,765
Total assets.................................... 2,832,856 2,882,630 3,731,647 7,682,397
Long-term debt.................................. 680,735 746,195 698,926 630,926
Total liabilities............................... 2,328,091 2,070,388 2,849,536 2,781,536
Stockholders' equity............................ 504,765 812,242 882,111 4,900,861
</TABLE>
- ------------------------
(1) Reflects the issuance of the 1,000,000 Shares and 1,000,000 Warrants offered
hereby and the application of the net proceeds therefrom.
7
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH INVESTMENTS IN THE SECURITIES OFFERED HEREBY. THIS PROSPECTUS CONTAINS
CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. AN INVESTMENT IN THE SECURITIES
OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
1. COMPETITION. The Company's business is subject to significant
competition. The refrigerated salad dressing market is highly competitive.
Outside the refrigerated sector of the industry, Kraft, Select, Hidden Valley
and Weight Watcher's are large competitors in the retail sector. The Company is
not a significant competitor in the shelf-stable sector of the industry. The
primary food service sector competitors that the Company faces are also Kraft,
Select, Hellmann's and Richardson's.
The Company's Renee's Gourmet-TM- brand products compete with other larger
and better capitalized food companies that manufacture refrigerated dressings.
The larger competitors who also place their products in the refrigerated produce
or dairy sections in the United States include Dean's Foods which distributes
Marie's brand salad dressings, T. Marzetti's, an independent manufacturer, and
Naturally Fresh, which three companies comprise approximately 85% of the United
States market. Another significant competitor in the refrigerated section in the
United States includes Walden's.
The private label industry is also highly competitive. Manufacturers compete
on price, quality and taste and contracts are awarded based primarily on these
criterion. The Company has been successful in competing for private label
agreements with several supermarket chains and food service institutions, and
has been in fact rated number one for its quality of product and services
provided under private label agreements. There are no assurances that the
Company will continue to be able to provide prices acceptable to its customers.
There are also regional competitors that the Company competes with. Certain
of the Company's competitors have greater financial and other resources than the
Company. See "Business--Competition".
2. SECURED LOANS; EXISTENCE OF LIENS ON SIGNIFICANT PORTION OF ASSETS. A
substantial portion of the Company's assets have been pledged as security for a
credit facility with National Bank of Canada. The credit facility includes a
Cdn$900,000 revolving demand loan, Cdn$1,332,536 in non-revolving demand loans,
Cdn$350,000 U.S. currency forward contract and a Cdn$30,000 business MasterCard.
The credit facility is secured by assets of' the Company including assignment of
the Cdn$200,000 life insurance policy on Arnold Unger, the Cdn$150,000 life
insurance policy on Renee Unger, and the Company's accounts receivable,
inventory, outstanding shares of the Company's subsidiaries, and all intangible
property. The credit facility has been additionally guaranteed by the Company's
officers, Renee Unger and Arnold Unger, in the amount of $250,000 each and by a
collateral mortgage on the personal residence of Renee Unger located in Ontario.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Transactions".
There are certain restrictions on debt to equity ratios along with other
negative and affirmative covenants. The aforementioned pledge of security makes
such assets unavailable to secure additional debt financing, which may affect
the Company's ability to borrow further in the future.
3. REGULATION. The Company is subject to various Canadian and United
States regulations relating to health and safety standards. The Company is also
responsible for adhering to environmental standards for manufacturing
facilities. Regulations in new markets and future changes in existing
regulations may adversely impact the Company by raising the cost of production
and delivery of dressings and sauces and/ or by affecting the perceived
healthfulness of the Company's products. A failure to comply with one or more
regulatory requirements could result in a variety of sanctions, including fines
and the withdrawal of
8
<PAGE>
the Company's products from store shelves. Because the Company sells a portion
of its products in the United States, the Company must comply with federal
regulations administered by the United States Food and Drug Administration (the
"FDA") and the United States Department of Agriculture. Food labeling
regulations administered by the Secretary of Health and Human Services through
the FDA subject the Company to uniform labeling and certain other labeling
requirements for its products.
4. NEW PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE. The perpetuation of the
Company's success is dependent upon continued name recognition and acceptance of
the Company's existing and new products. No assurances can be made that any or
all products will achieve or maintain consumer acceptance. The Company has been
developing new flavors and types of sauces for Renee's Gourmet-TM- brand
products along with the Excelle brand and private labels. The Company has
especially focused on increasing its low-fat and fat-free line of dressing
products since low-fat food production is the fastest growing sector of the
refrigerated industry. There are no assurances that this trend will persist or
that the Company will have the ability to successfully introduce or market any
of its new products. Continued product development and commercialization efforts
are subject to all of the risks inherent in the development of new products.
There is no assurance that the Company will be able to develop, manufacture and
distribute new products which achieve market acceptance. See "Business".
5. EXPANSION INTO UNITED STATES AND OTHER MARKETS. The Company's sales in
the United States have been limited to private label products. The Company's
brand products do not have name recognition in the United States market. The
Company's strategy is to penetrate into the U.S. market and to introduce its
brand products into other markets. The U.S. market for refrigerated dressings is
highly competitive. In order to penetrate the U.S. and other markets, the
Company will have to devote significant resources to advertising and marketing
in such countries in order to develop consumer awareness of its products and to
procure sufficient shelf space for its products. There can be no assurance that
the Company will be successful in its efforts. The Company intends to devote a
portion of the net proceeds of this Offering toward the expansion into the U.S.
market and other markets.
6. LIMITED SHELF-SPACE. The Company's products require refrigeration and
are primarily marketed in the produce section where there is substantial
competition for limited shelf-space. There is no assurance that the Company will
be able to acquire additional shelf-space for its products or maintain its
current space. In order to receive shelf-space, the Company often offers
discounted initial product shipments, advertising allowances or cash. No
assurances may be given that the Company will be able to continue to pay these
expenses.
7. RAW MATERIAL SHORTAGE. The availability and favorable pricing of fresh
ingredients for the manufacture of salad dressings, dips, marinades and
mayonnaise are factors that the Company cannot control. The Company experienced
a decrease in the price of vegetable oil and sugar that was offset by an
increase in the price of eggs and cheeses in the past year. If the Company
cannot be supplied with the raw materials necessary and at favorable prices, the
Company could be adversely affected by having to discontinue certain flavors,
substitute traditional ingredients for others and/or raise prices. Alteration of
products may affect consumer choices and sales and may have a materially adverse
effect on the Company's business.
8. LACK OF PATENT PROTECTION FOR MANUFACTURING PROCESSES OR RECIPES. The
Company holds no patents on either its manufacturing processes or recipes.
Management believes that it provides better protection of its recipes from
competitors by not patenting them, thereby keeping them secret. No assurances
can be made that any of the recipes or the manufacturing process would satisfy
the requirements for a patent, or if a patent were issued, that it would be
enforceable.
9. SEASONALITY. The Company's business, particularly its retail branded
dressing segment, is subject to the seasonal variations of the refrigerated
salad dressing industry that revolve around the prime produce season in the
spring and summer months. Beginning in March through May, the Company increases
its
9
<PAGE>
production and sales of goods. The Company also experiences surges in sales
during November and December. The seasonality of its business has been
substantially decreased as a result of the Company's increase in the food
service segment, private label business and non-salad dressing products such as
sauces, which is consistent throughout the year.
10. DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend
to a significant extent on the efforts of key management personnel, including
Renee Unger, its President, Arnie Unger, its Chief Executive Officer, and other
key personnel. The Company is in the process of entering into employment
agreements with Arnold Unger and Renee Unger and other key employees. The loss
of one or more of these key employees could have a material adverse effect on
the Company's business. The Company maintains key-man life insurance policies in
an amount of $240,000 for Arnold Unger and Renee Unger and may acquire it for
other key employees. In addition, the Company believes that its future success
will depend in large part upon its continued ability to attract and retain
highly qualified management, technical and sales personnel. There can be no
assurance that the Company will be able to attract and retain the qualified
personnel necessary for its business.
11. CONTROL BY EXISTING STOCKHOLDERS. Upon the completion of this
Offering, the Company's management will collectively beneficially own 72% (69%
if the Underwriters' Over-Allotment Option is exercised in full) of the
Company's outstanding Common Stock. Because of their beneficial stock ownership,
these stockholders will be in a position to continue to elect the majority
members of the Board of Directors and decide matters requiring stockholder
approval. See "Principal Stockholders and Selling Securityholders".
12. PRODUCT LIABILITY CLAIMS. Although the Company has not been subject to
future any claims for product liability, the Company could be subject to future
product liability claims in connection with the food products that it sells. As
the Company expands its food products lines and distributes more products into
the marketplace, the Company's exposure to such potential liability will also
increase. The Company currently maintains product liability insurance in the
amount of Cdn$2,000,000 ($50,000 limit for product recall), however, this policy
only covers certain claims and the cost of legal fees involved in the defense of
such claims which are either covered under the policy or alleged in such manner
as to invoke the insurer's duty to defend the Company. There is no assurance
that such coverage would be adequate in terms and scope to protect the Company
in the event of a successful product liability claim. No assurance can be given
that the Company will be able to maintain the existing coverage or obtain
additional coverage at commercially reasonable rates. To the extent product
liability losses are beyond the limits or scope of the Company's insurance
coverage, the Company could experience a materially adverse effect upon its
business, operations, profitability, and assets.
13. FREIGHT AND TRANSPORTATION. The Company is dependent on independent
freight haulers to ship the Company's products to distribution facilities. The
ability of the Company to control its transportation and freight expenses is a
significant factor in the Company's gross profit margin. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations". There
is no assurance that the Company will be able to maintain acceptable freight and
transportation pricing and arrangements. Furthermore, a labor slowdown, strike
or other matters beyond management's control may adversely affect the Company's
ability to ship its products on a timely basis or at all. See "Business".
14. NO PRIOR PUBLIC MARKET. Prior to this Offering, there has been no
public market for the Common Stock and/or Warrants. Accordingly, there can be no
assurance that an active trading market will develop and be sustained upon the
completion of this Offering. The initial public offering price of the Common
Stock and/or Warrants has been determined by negotiations between the Company
and the Representative and does not necessarily bear any relation to the
Company's asset value, earnings or other objective criteria. See "Underwriting".
The stock market has, from time to time, experienced extreme price and volume
fluctuations which often have been unrelated to the operating performance of
particular companies. Although it has no obligation to do so, the Representative
intends to engage in market-making activities or solicited brokerage activities
with respect to the purchase or sale of the Common Stock and
10
<PAGE>
Warrants in the Nasdaq SmallCap Market. However, no assurance can be given that
the Representative will continue to participate as a market-maker in the
securities of the Company or that other broker/ dealers will make a market in
such securities which may adversely impact the liquidity of the securities.
Regulatory developments and economic and other external factors, as well as
period-to-period fluctuations in financial results, may also have a significant
impact on the market price of such securities.
15. IMMEDIATE AND SUBSTANTIAL DILUTION. This Offering involves an
immediate and substantial dilution to investors. Purchasers of Shares in the
Offering will incur an immediate dilution of $3.94 per Share in the net tangible
book value of their investment from the initial public offering price, which
dilution amounts to approximately 79% of the initial public offering price per
Share. Investors in the Offering will pay $5.00 per Share, as compared with an
average cash price of $.29 per share of Common Stock paid by existing
stockholders. See "Dilution".
16. BROAD DISCRETION IN APPLICATION OF PROCEEDS; UNSPECIFIED
ACQUISITIONS. Approximately 52% of the net proceeds of this Offering will be
applied to working capital and general corporate purposes. This includes a
portion of the net proceeds of this Offering currently allocated to working
capital for potential acquisitions. As of the Effective Date, the Company has
not identified any particular acquisition targets. Stockholders of the Company
may have no opportunity to approve specified acquisitions or to review the
financial condition of any potential target. Accordingly, management of the
Company will have broad discretion over the use of proceeds. See "Use of
Proceeds".
17. NEED FOR ADDITIONAL FINANCING. The Company believes that the proceeds
of the Offering will, together with revenues from operations, be sufficient to
finance the Company's working capital requirements for a period of at least 12
months following the completion of this Offering. In addition, a part of the
Company's strategy is to acquire companies with related and complementary
businesses, although the Company has not presently identified any specific
acquisitions. The continued expansion and operation of the Company's business
beyond such 12 month period and its ability to make acquisitions may be
dependent upon its ability to obtain additional financing. There can be no
assurance that additional financing will be available on terms acceptable to the
Company, or at all. In the event that the Company is unable to obtain such
additional financing as it becomes necessary, the Company may not be able to
achieve all of its business plans. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
18. SHARES ELIGIBLE FOR FUTURE SALE. Of the 4,075,000 shares of Common
Stock of the Company to be outstanding upon completion of this Offering, 65,000
are being registered and may be immediately resold and 2,835,000 shares shall be
"restricted securities," which are owned by "affiliates" of the Company, as
those terms are defined in Rule 144 promulgated under the Act. Absent
registration under the Act, the sale of such shares is subject to Rule 144, as
promulgated under the Act. All of the "restricted securities" are eligible for
resale under Rule 144. In general, under Rule 144, subject to the satisfaction
of certain other conditions, a person, including an affiliate of the Company,
who has beneficially owned restricted shares of Common Stock for at least one
year is permitted to sell in a brokerage transaction, within any three-month
period, a number of shares that does not exceed the greater of 1% of the total
number of outstanding shares of the same class, or if the Common Stock is quoted
on Nasdaq or a stock exchange, the average weekly trading volume during the four
calendar weeks preceding the sale. Rule 144 also permits a person who presently
is not and who has not been an affiliate of the Company for at least three
months immediately preceding the sale and who has beneficially owned the shares
of Common Stock for at least two years to sell such shares without regard to any
of the volume limitations as described above. Holders of 2,900,000 shares of
Common Stock are affiliates of the Company. All of the Company's shareholders
who are affiliates have agreed not to sell or otherwise dispose of any of their
shares of Common Stock now owned or issuable upon the exercise of any option for
a period of 18 months from the Effective Date, without the prior written consent
of the Representative. The remaining 175,000 shares or Common Stock outstanding
are eligible for resale under Rule 144 on May 22, 1998, subject to a 12 month
lock up during
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<PAGE>
which such shares may not be sold without the prior written consent of the
Representative. No prediction can be made as to the effect, if any, that sales
of shares of Common Stock or the availability of such shares for sale will have
on the market prices of the Company's securities prevailing from time to time.
The possibility that substantial amounts of Common Stock may be sold under Rule
144 into the public market may adversely affect prevailing market prices for the
Common Stock and Warrants and could impair the Company's ability to raise
capital in the future through the sale of equity securities. See "Shares
Eligible for Future Sale".
19. NO DIVIDENDS AND NONE ANTICIPATED. To date, no dividends have been
declared or paid on the Common Stock, and the Company does not anticipate
declaring or paying any dividends in the foreseeable future, but rather intends
to reinvest profits, if any, in its business. Investors should, therefore, be
aware that it is unlikely that any dividends will be paid on the Common Stock in
the foreseeable future. See "Dividends".
20. NASDAQ ELIGIBILITY AND MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF
COMMON STOCK FROM NASDAQ SMALLCAP MARKET. Prior to this Offering, there has
been no established public trading market for the Company's Common Stock or
Warrants and there is no assurance that a public trading market for the
Company's securities will develop after the completion of this Offering. If a
trading market does in fact develop for the securities offered hereby, there can
be no assurance that it will be sustained.
The Company has applied for listing of the Common Stock and Warrants on
Nasdaq SmallCap Market upon the Effective Date. The Commission has recently
approved new rules imposing criteria for listing of securities on the Nasdaq
SmallCap Market, including standards for maintenance of such listing. In order
to qualify for initial quotation of securities on the Nasdaq SmallCap Market, an
issuer, among other things, must have at least $4,000,000 in net tangible
assets, $3,000,000 in market value of the public float and a minimum bid price
of $5.00 per share. For continued listing, an issuer, among other things, must
have $1,000,000 in net tangible assets, $1,000,000 in market value of securities
in the public float and a minimum bid price of $1.00 per share. If the Company
is unable to satisfy the Nasdaq SmallCap Market's maintenance criteria in the
future, its Common Stock and Warrants may be delisted from the Nasdaq SmallCap
Market. In such event, trading, if any, in the Company's Common Stock or
Warrants, would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or the NASD's "Electronic Bulletin Board." As a
consequence of such delisting, an investor would likely find it more difficult
to dispose of, or to obtain quotations as to, the price of the Company's Common
Stock or Warrants.
21. PENNY STOCK REGULATION. In the event that the Company is unable to
satisfy the maintenance requirements for the Nasdaq SmallCap Market and its
Common Stock falls below the minimum bid price of $5.00 per share for the
initial quotation, trading would be conducted on the "pink sheets" or the NASD's
Electronic Bulletin Board. In the absence of the Common Stock being quoted on
Nasdaq, or listed on an exchange, trading in the Common Stock would be covered
by Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") if the Common Stock is a "penny stock." Under such rule,
broker-dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on Nasdaq, and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the
12
<PAGE>
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated therewith.
If the Company's Common Stock were to become subject to the regulations
applicable to penny stocks, the market liquidity for the Common Stock and
Warrants would be severely affected, limiting the ability of broker-dealers to
sell the Common Stock and Warrants and the ability of purchasers in this
Offering to sell their Common Stock and Warrants in the secondary market. There
is no assurance that trading in the Common Stock and Warrants will not be
subject to these or other regulations that would adversely affect the market for
such securities.
22. POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants
offered hereby are redeemable, in whole or in part, at a price of $.10 per
Warrant, commencing one year after the Effective Date (or earlier with the
consent of the Underwriters) and prior to their expiration; provided that (i)
prior notice of not less than 30 days is given to the Warrantholders; (ii) the
closing bid price of the Common Stock on each of the 20 consecutive business
days ending on the third business day prior to the date on which the Company
gives notice of redemption has been at least $9.00; and (iii) Warrantholders
shall have exercise rights until the close of the business day preceding the
date fixed for redemption. Notice of redemption of the Warrants could force the
holders to exercise the Warrants and pay the Exercise Price at a time when it
may be disadvantageous for them to do so, or to sell the Warrants at the current
market price when they might otherwise wish to hold them, or to accept the
redemption price, which may be substantially less then the market value of the
Warrants at the time of redemption. See "Description of Securities--Warrants".
23. REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN
CONNECTION WITH THE EXERCISE OF THE WARRANTS. The Warrants offered hereby are
not exercisable unless, at the time of exercise, (i) there is a current
prospectus relating to the Common Stock issuable upon the exercise of the
Warrants under an effective registration statement filed with the Securities and
Exchange Commission, and (ii) such Common Stock is then qualified for sale or
exempt therefrom under applicable state securities laws in the jurisdictions in
which the various holders of Warrants reside. There can be no assurance,
however, that the Company will be successful in maintaining a current
registration statement. After a registration statement becomes effective, it may
require updating by the filing of a post-effective amendment. A post-effective
amendment is required (i) any time after nine months subsequent to the effective
date when any information contained in the prospectus is over sixteen months
old, (ii) when facts or events have occurred which represent a fundamental
change in the information contained in the registration statement, or (iii) when
any material change occurs in the information relating to the plan or
distribution of the securities registered by such registration statement. The
Company anticipates that this Registration Statement will remain effective for
at least nine months following the date of this Prospectus or until ,
1998 assuming a post effective amendment is not filed by the Company. The
Warrants will be separately tradeable and separately transferable from the
Common Stock offered hereby immediately commencing on the Effective Date. The
Company intends to qualify the Warrants and the shares of Common Stock issuable
upon exercise of the Warrants in a limited number of states, although certain
exemptions under state securities ("blue sky") laws may permit the Warrants to
be transferred to purchasers in states other than those in which the Warrants
were initially qualified. The Company will be prevented, however, from issuing
shares of Common Stock upon exercise of the Warrants in those states where
exemptions are unavailable and the Company has failed to qualify the Common
Stock issuable upon exercise of the Warrants. The Company may decide not to
seek, or may not be able to obtain qualification of the issuance of such Common
Stock in all of the states in which the holders of the Warrants reside. In such
a case, the Warrants of those holders will expire and have no value if such
Warrants cannot be exercised or sold. See "Description of Securities".
24. NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES UNDERLYING THE
WARRANTS. Although the Common Stock and the Warrants will not knowingly be sold
to purchasers in jurisdictions in which they are not registered or otherwise
qualified for sale, purchasers may buy the Common Stock or Warrants in the
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<PAGE>
aftermarket or may move to jurisdictions in which the shares of Common Stock
issuable upon exercise of the Warrants are not so registered or qualified during
the period that the Warrants are exercisable. In such event, the Company could
be unable to issue shares to those persons desiring to exercise their Warrants
unless and until the shares could be registered or qualified for sale in the
jurisdiction in which such purchasers reside, or an exemption to such
qualification exists or is granted in such jurisdiction. If the Company was
unable to register or qualify the shares in a particular state and no exemption
to such registration or qualification was available in such jurisdiction, in
order to realize any economic benefit from the purchase of the Warrants, a
holder might have to sell the Warrants rather than exercising them. No assurance
can be given, however, as to the ability of the Company to effect any required
registration or qualification of the Common Stock or Warrants in any
jurisdiction in which registration or qualification has not already been
completed. See "Description of Securities--Warrants".
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<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Securities
offered hereby at public offering prices of $5.00 per Share and $.10 per
Warrant, after deducting underwriting commissions and offering expenses to be
paid by the Company, is estimated to be $4,115,000. The Company expects to apply
the net proceeds of the Offering as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS AMOUNT NET PROCEEDS
- ------------------------------------------------------------------ ------------ -------------
<S> <C> <C>
Repayment of Bridge Notes (1)..................................... $ 681,250 16%
Sales and Marketing(2)............................................ $ 627,000 15%
Hire Additional Sales and Operations Personnel(3)................. $ 200,000 4%
Property and Equipment(4)......................................... $ 150,000 4%
Research and Development.......................................... $ 150,000 4%
Payment of Financial Advisory Fee(5).............................. $ 108,000 3%
Repayment of Long Term Debt(6).................................... $ 68,000 2%
Working Capital(7)................................................ $ 2,130,750 52%
------------ -----
Total............................................................. $ 4,115,000 100%
-----
-----
</TABLE>
- ------------------------
(1) On the consummation of this Offering, the Company is obligated to repay the
principal of the Bridge Notes in the aggregate principal amount of $625,000,
plus accrued and unpaid interest of approximately $56,250. The Bridge Notes
accrue interest on the principal amount at the rate of 12% per annum. The
proceeds from the Bridge Notes were used for working capital purposes and to
repay certain debt. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".
(2) The net proceeds allocated to marketing and sales are expected to be applied
towards the promotion of the Company's main brands in their respective key
markets, including the United States, over the next 18 months. The proceeds
are intended to be applied to product development, market research, point of
sale materials, event participation and sponsorships, paid media
advertising, distributor incentive programs and sales person incentive
programs.
(3) The Company anticipates hiring additional sales and operations employees and
has allocated these net proceeds to fund certain incremental costs over the
next 18 months.
(4) The net proceeds allocated to property and equipment purchases in the next
18 months are expected to be applied towards the expansion and improvement
of the Company's production capacity.
(5) $108,000 will be paid to the Underwriters pursuant to a three-year financial
advisory agreement, all of which is payable upon consummation of the
Offering.
(6) The net proceeds allocated to repayment of long term debt is to pay in full
the outstanding principal balance and accrued and unpaid interest of the
Business Development Bank of Canada loan due August 2001. The loan is
repayable in blended monthly payments of $1,650 principal and interest at a
floating commercial and industrial loan rate, plus 2.5% per annum. The loan
is secured by personally guarantees by Arnold Unger and Renee Unger in the
amount of Cdn$50,000 each and a lien on the Company's assets. See "Certain
Transactions".
(7) The net proceeds allocated to working capital includes funds for general
corporate purposes including possible strategic acquisitions, although the
Company has not identified any definite acquisition candidate.
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<PAGE>
The foregoing represents the Company's estimate of the allocation of the net
proceeds of the Offering, based upon the current status of its operations and
anticipated business needs. It is possible, however, that the application of
funds will differ considerably from the estimates set forth herein due to
changes in the economic climate and/or the Company's planned business operations
or unanticipated complications, delays and expenses, as well as any potential
acquisitions that the Company may consummate, although no specific acquisition
has been identified. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Any reallocation of the net proceeds will
be at the discretion of the Board of Directors of the Company.
Any additional net proceeds realized from the exercise of the Over-Allotment
Option (up to approximately $688,500) will be added to the Company's working
capital.
Pending application, the net proceeds will be invested principally in
short-term certificates of deposit, money market funds or other short-term
interest-bearing investments.
The Company estimates that the net proceeds from this Offering will be
sufficient to meet the Company's liquidity and working capital requirements for
a period of 18 months from the completion of this Offering. In the event that
the Company consummates any acquisition, although no specific acquisition has
been identified, such funds will be derived from the funds currently allocated
to working capital or from revenues generated from the Company's operations.
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<PAGE>
DIVIDEND POLICY
The Company has never paid or declared dividends on its Common Stock. The
payment of cash dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements, financial condition and other relevant factors. The Company
intends, for the foreseeable future, to retain future earnings for use in the
Company's business.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of April
30, 1997 and as adjusted to reflect the sale of 1,000,000 Shares and 1,000,000
Warrants offered hereby and the estimated net proceeds therefrom and the Bridge
Financing of up to $625,000 12% promissory notes and 175,000 shares of Common
Stock and 175,000 Common Stock purchase Warrants and the estimated net proceeds
therefrom. The information provided below should be read in conjunction with the
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
APRIL 30, 1997
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- --------------
Long-term debt, less current maturities.............................................. 698,926 630,926
---------- --------------
Shareholders' equity:
Common Stock, no par value, unlimited shares authorized: 2,900,000 issued and 160 4,115,160
outstanding (1); and 4,075,000 issued and outstanding as adjusted (2)..........
Foreign currency transaction adjustment.............................................. -41,361 -41,361
Retained earnings.................................................................... 923,312 923,312
---------- --------------
Total shareholders' equity....................................................... 882,111 4,900,861
---------- --------------
Total capitalization............................................................. 1,581,037 5,531,787
---------- --------------
---------- --------------
</TABLE>
- ------------------------
(1) Represents the rollover of the 200 Shares in the existing companies into
2,900,000 shares of Common Stock of the Company. Does not include 500,000
shares of Common Stock provided for issuance under the Company's Stock
Option Plan of which options to purchase up to 200,000 shares have been
granted.
(2) Reflects issuance of the 1,000,000 Shares. Assumes no exercise of the
Warrants, the Underwriters' Warrant or the Over-Allotment Option.
18
<PAGE>
DILUTION
Dilution represents the difference between the initial public offering price
paid by the purchasers in the Offering and the net tangible book value per share
immediately after completion of the Offering. Net tangible book value per Share
represents the amount of the Company's total assets minus the amount of its
liabilities and intangible assets divided by the number of shares outstanding.
As of April 30, 1997, after giving effect to the Bridge Financing of $625,000
12% promissory notes, 175,000 shares of Common Stock and 175,000 common stock
purchase warrants, the net tangible book value of the Company's Common Stock was
$896,422 or $0.29 per share. Without taking into account any changes in net
tangible book value after April 30, 1997, other than to give effect to the
Bridge Financing, and other than to give effect to the sale of the Shares and
Warrants offered hereby and the receipt of the net proceeds of this Offering,
the pro forma net tangible book value of the Company as of April 30, 1997 would
have been $4,330,172 or $1.06 per Share. Consequently, there will be an
immediate increase in net tangible book value of $0.77 per Share to the existing
shareholders and an immediate substantial dilution (i.e. the difference between
the offering price of $5.00 and the pro forma net tangible book value per Share
after the Offering) of $3.94 or 78.8% to new investors purchasing the Shares
offered hereby.
The following table illustrates, as of April 30, 1997, this per share
dilution:
<TABLE>
<S> <C> <C>
Public offering price per Share................................. 5.00
Net tangible book value before Offering(1).................. 0.29
Increase per Share attributable to new investors............ 0.77
---
Pro forma net tangible book value per Share after Offering(1)... 1.06
---
Dilution per Share to new investors(1).......................... 3.94
---
---
</TABLE>
The following table summarizes, as of April 30, 1997, the total number of
shares of Common Stock purchased from the Company, the total consideration paid,
and the average price per share paid by the existing shareholders, after giving
effect to the Bridge Financing, and by new investors who purchase shares of
Common Stock pursuant to this Offering. The computation excludes any value
ascribed to or proceeds relating to the Warrants.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE AVERAGE
SHARES OF TOTAL AGGREGATE OF TOTAL PRICE
PURCHASED (1) SHARES CONSIDERATION CONSIDERATION PER SHARE
------------- ----------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........................ 3,075,000 75% 896,421 15% $ 0.29
New Investors................................ 1,000,000 25% 5,000,000 85% 5.00
------------- ----- ------------- ----- -----
Total........................................ 4,075,000 100% 5,896,421 100%
------------- ----- ------------- -----
------------- ----- ------------- -----
</TABLE>
- ------------------------
(1) This information does not include (i) 100,000 Shares issuable upon the
exercise of the Underwriters' Warrant; (ii) 500,000 Shares that may be
issued under the Company's Stock Option Plan or (iii) 150,000 Shares
available under the Over-Allotment Option.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The statements contained in this Prospectus that are not historical are
forward looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, including statements regarding the
Company's expectations, intentions, beliefs or strategies regarding the future.
All forward looking statements include the Company's statements regarding
liquidity, anticipated cash needs and availability and anticipated expense
levels. All forward looking statements included in this Prospectus are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward looking statement. It is important to
note that the Company's actual results could differ materially from those in
such forward looking statements. Among the factors that could cause actual
results to differ materially are the factors detailed in the risks discussed in
the "Risk Factors" section included in this Prospectus at page 7.
The salad dressing market is highly competitive, in both the refrigerated
and non-refrigerated dressing markets, and consists of foreign manufacturers
most of whom are larger with greater resources. The diverse distribution
channels in which the Company markets its products involve different competitive
factors. The ability to provide specialized services is important in mass
merchandisers and discount stores. Product availability and the ability to offer
consistent product quality at competitive prices is a key competitive factor.
See "Business--Competition".
The Company's future success as a manufacturer and merchandiser of
high-quality salad dressings, sauces, dips and marinades will be influenced by
several factors including the ability of the Company to efficiently meet the
production, quality and taste requirements of its customers, management's
ability to evaluate the public's quality and taste requirements and to achieve
market acceptance of its dressings. Further factors impacting the Company's
operations are increases in expenses associated with the continued sales growth,
the ability of the Company to control costs, to develop products with
satisfactory profit margins and the ability to develop and manage the
introduction of new products and competition. Quality control as well as use of
natural ingredients are also essential to the Company's success.
The Company's customer base is divided among retail and private label
customers, and food service establishments. Scott Hospitality, a food service
establishment, accounts for approximately 11% of the Company's sales. No other
customer accounts for more than 10% of the Company's sales Approximately 31% of
the Company's sales are to major retail customers, 18% are to major private
label customers, 16% are to food service establishments and the remaining 34%
are to smaller customers.
The Company is not dependent upon any major customer for a significant
portion of its revenues. However, there are customers which do represent between
5-11% of the Company's revenues. These include National Grocer's, Oshawa Foods,
Provigo, A&P and Scotts/KFC in Canada and Shaws Supermarkets in the United
States. The Company has contracts with a number of private label accounts,
including Scotts/KFC, Shaws, Horizons and Sobey's.
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1997 COMPARED TO THREE MONTHS ENDED APRIL 30,
1996.
Revenues for three months ended April 30, 1997 were $2,780,557, a 24.7%
increase over prior year revenues of $2,309,733. This increase was due to growth
in Renee's branded business (launch of incrementally new Renee's Gourmet
Naturally Light-TM- dressings in May 1996), food service (incremental Scotts/
KFC business) and private label (Shaw's, Wegman's in the United States and
Horizon's launch across Canada in April 1997).
Gross profit for three months ended April 30, 1997 was 32.6% of net
revenues, a substantial improvement as compared to same quarter one year ago,
which was 29.0%. This positive change can be attributed to improvements in
operational efficiency and cost of goods. Lower contracted prices for oil,
cheese and other primary ingredients have contributed as well as lower than
planned factory overhead and
20
<PAGE>
direct labor expenses (attributable to reduced overtime and temporary help).
Gross margins were not affected by price changes, which, for the most part,
remained unchanged, as compared to the prior year.
Selling and marketing expenses increased by $171,686 in the three months
ended April 30, 1997 over 1996. As a percent of the increase over prior year
reflects a continuation of incremental support costs against the launch of
Renee's Gourmet Naturally Light-TM- and a focused strategy to invest in the
growth of branded business through increased advertising and consumer
promotions. General and Administrative expenses of $204,784 were 28.2% higher
than prior year, reflecting both timing differences and increased spending to
support sales growth.
Income from operations increased $32,524, to $226,542 for the three months
ended April 30, 1997 versus prior year. As a percent of net revenues, 1997
income for the quarter was in line with prior year at 9.3%. This increase is
directly as a result of continued sales growth, and improved gross margins,
which more than offset the investment in consumer promotions, and advertising.
FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1996.
Revenues for fiscal year January 31, 1997 were $10,459,655, a 23.7% increase
over prior year revenues of $8,457,288. This increase was due to double digit
growth in each primary business segment (Retail Branded, Food Service and
Private Label). Renees branded business growth was impacted by the launch of a
new line of Renee's Gourmet Naturally Light-TM- dressings and three new Renees
regular line extensions (Mighty Caesar, Light Poppy and Mandarin Orange). Food
Service growth came from incremental Scotts/ KFC business across Canada and the
private label business was impacted by the launch of a number of new products
under the Shaws label.
Gross Profit for fiscal year ended January 31, 1997 was 29.8% of net
revenues, a substantial improvement as compared to prior year, which was 26.7%.
From the total Gross Profit in the last fiscal year of $2,859,721, approximately
$297,000 can be attributed to improvements in the operational efficiency and
costs of goods, (versus the prior year). The remaining increase in Gross Profit
($393,000), traces to the mix of goods and incremental volume of business.
Manufacturing efficiencies were impacted by average yield improvements of 6.0%,
aided by capital additions, reduced downtime, improved fill levels, and
increased minimum batch sizes. Lower primary ingredient costs were negotiated
(oil, cheeses, and sugar) which contributed to improved margins. Gross margins
were not affected by price changes, which, for the most part, remained
unchanged, as compared to the prior year.
Selling and Marketing expenses increased by $390,451 in fiscal 1997 over
1996. As a percent of net revenues, these expenses increased from 12.0% to
13.8%. The increase over the prior year reflects incremental support costs
against the launch of Renees Naturally Light and a focused strategy to invest in
the growth of branded business through increased advertising and consumer
promotions (demonstrations and couponing).
General and Administrative expenses increased by $120,893 in fiscal 1997
over 1996, however, as a percent of net revenues, they decreased marginally from
8.1% to 7.8%. The increase is a result of costs necessitated by sales growth,
however, continued efforts at internal cost controls have ensured spending is
effective.
Income from operations increased $356,778 in fiscal 1997, from $412,994 to
$769,772 an increase of 86%. As a percent of net revenues, income improved to
8.0%, as compared to 5.3% for 1996. This increase is directly as a result of
sales growth, and improved gross margins, which more than offset the investment
in consumer promotions and advertising.
Interest expense decreased by $9,109 in fiscal 1997, from $86,233 to
$77,124. This change reflects the company's decision to refinance operating and
term loans, and negotiate a substantially improved banking facility with the
National Bank in the first half of fiscal 1997.
Income before unusual items (including interest expense and amortization),
improved by $311,343 in fiscal 1997, from $95,985 to $407,328. The company
recorded an unusual item which improved income by
21
<PAGE>
$401,086 in 1996. This reflected a restructuring of unsecured and overdue
creditor debt during that year. 1996 income before taxes were adjusted to
$497,071 as a result of the debt forgiveness recorded.
LIQUIDITY AND CAPITAL RESOURCES
The company has generated positive cash flows in each of the last two fiscal
years. In 1996, the company had a net increase in cash flow of $61,144 from
operations. The principal source of cash was from net income of $421,431, a
decrease in inventory of $138,595, prepaid expenses of $29,800 and an addback of
amortization which totaled $230,776. The company's long term debt borrowing
increased by $314,317 which was used to purchase capital equipment. Accounts
payable and accrued liabilities decreased by $850,110, reflecting primarily
negotiations with certain unsecured creditors to forgive a substantial portion
of amounts owing, and to reclassify an agreed amount of the debt as long term.
Cash flow from investing activities was reduced by $112,555 as a result of the
purchase of capital equipment, primarily for the production process. In
addition, cash was used for an increase in accounts receivable by $221,540,
directly as a result of increased sales volumes.
In 1997, the company had a net increase in cash flow of $140,208 from
operations. The principal source of cash was from net income of $293,961, a
decrease in accounts receivable for $151,567 and an addback of amortization
which totaled $285,320. Accounts payable and accrued liabilities decreased by
$190,191, reflecting improved internal controls, and cash management, which
reduced aged payables in the range of 30-45 days. Cash flow from investing
activities was reduced by $284,710 as a result of the purchase of capital
equipment, primarily for the production process. (The additional capital spent
ultimately had a direct impact on improved margins during fiscal 1997).
In June of fiscal 1997, the Company entered into a secured credit
arrangement with National Bank of Canada. This new facility included a credit
line of Cdn$750,000, that is due on demand and bears interest at prime plus
1.5%. All borrowings are collateralized by the assets of the Company.
In May 1997, the Company completed a private placement of its securities
("Bridge Financing") in which it sold 12% promissory notes in the aggregate
principal amount of $625,000 ("Bridge Notes"), 175,000 shares of Common Stock
and 175,000 redeemable common stock purchase warrants and raised aggregate gross
proceeds of $625,000. The net proceeds of $543,750 were initially applied to pay
bank loans and trade payables. The principal and accrued interest on the Bridge
Notes are due and payable upon the earlier of 18 months from the close of the
private placement, a public equity or debt offering by the Company, or the
exchange of the majority of the Company's securities with the securities of
another company.
The Company will receive net proceeds of this Offering in an amount
estimated to be approximately $4,115,000. The Company believes that the proceeds
of the Offering, coupled with income from operations will fulfill the Company's
working capital needs for at least the next two years. It is the Company's
intention to utilize a significant portion of the proceeds to aggressively seek
synergistic acquisitions which would utilize currently available capacity. The
Company also intends to support its branded Renees business through increased
marketing, advertising and distribution throughout North America. As the Company
continues to grow, bank borrowings, other debt placements and equity offerings
may be considered, in part, or in combination, as the situation warrants.
22
<PAGE>
BUSINESS
PRODUCTS
The Company manufactures, markets and distributes over 200 products
including salad dressings, dips, sauces, marinades and mayonnaise. The salad
dressings are marketed throughout Canada and to a lesser degree in the United
States. The Company distributes a line of gourmet salad dressings to
supermarkets, gourmet stores and specialty shops, primarily in Canada, under the
name "Renee's Gourmet-TM-." Salad dressings, dips, sauces, marinades and
mayonnaise are also distributed under the brand name "Excelle-TM-" and under
private labels for both retail and food service establishments, including
supermarkets, restaurants, hotels, hospitals, schools and other institutional
cafeterias throughout Canada and the United States. The private labels are sold
under one of such names or the supermarkets' own name. The Company's private
labels include Shaw's, Grisanti's, Sobey's, President's Choice for Loblaw
Companies, Master Choice for A&P and Wegman's.
All of the products in the Renee's Gourmet-TM- line are made primarily from
natural ingredients and are preservative and MSG free, as well as being low in
sodium. Certain of the Company's products are also designed to serve certain
specific health conscience markets. For example, the Company markets products
which are made without milk, sugars or vegetable oils for consumers who are
lactose intolerant, diabetics, or allergy-prone. The Renee's line includes
Ranch, Caesar, Chunky Blue Cheese and Coleslaw, as well as more exotic flavors
such as Poppy Seed, Greek Feta and Mandarin Orange. Renee's has the largest
market share of any refrigerated salad dressing in Canada, according to a recent
AC Nielsen report.
The Company recently introduced its "Renee's Gourmet Naturally Light-TM-"
line which is low in fat and intended for the growing diet and health conscience
market. The low-fat line includes, Mandarin Orange, Country Ranch, Ravin'
Raspberry Vinegrette, Mediterranean Vinegrette, Roasted Red Pepper and Garlic,
Spring Herb Garlic Vinegrette and Jazzy Blue Cheese. Management intends to
introduce an extension of the Renee's Gourmet-TM- line which would include
low-fat marinades and sauces, as well as exploring the possibility of converting
a line of its products to a kosher designation.
Excelle products are made from premium ingredients. The Company produces
many salad dressings, dips, sauces, marinades and mayonnaise, including sauces
such as Peanut Sauce, Hickory Sauce and Wing Sauces. In addition, the Company
products include other more exotic sauces such as Key Lime Sauce & Marinade,
Thai and spicy sauces. The Company markets these products to supermarkets under
the Excelle label as well as the supermarkets' own brand under private label
arrangements.
The Company also makes exclusive specialty dressings for restaurants under
their own names. Such dressings are made for Kentucky Fried Chicken, East Side
Mario's, Grisanti's Casual Italian Restaurant's, Cultures Restaurant's, and
other restaurants.
The Company's products are sold to supermarkets in a variety of bottle sizes
and in one gallon containers and individual portion cups and pouches for food
service establishments. The salad dressings are sold in the produce section of
supermarkets and require refrigeration. Management believes that it is an
advantage to sell its products in the produce section because fewer competing
products are generally sold in the produce section and because such products
naturally complement lettuce and other vegetables sold in the produce section.
Where possible, the Company seeks to display its sauces and marinades in the
meat and poultry sections of supermarkets. The dressings have a four to six
month refrigerated shelf life.
The Company adheres to strict quality standards and uses fresh, natural
ingredients. The Company attracts customers by providing salad dressings, sauces
and other products which have unusual combinations of flavors and taste ranges,
which are not offered by competitors, and because of its focus on healthy
products.
23
<PAGE>
MANUFACTURING
The Company manufacturers its salad dressings and other products at its
Toronto, Ontario facility. The Company utilizes an integrated assembly process
and packaging line for its products which mixes the ingredients, bottles the
dressings, adds the appropriate labels and seals the bottles for consumer
protection. Because no preservatives are added to the salad dressings, they are
refrigerated on-site immediately and remain refrigerated through their shipping
and storage, until they are disseminated to various supermarkets, gourmet stores
or food service providers. The Company believes that new processing techniques
and other food science methods will increase shelf lives of the products by as
much as 25%, thereby increasing the profitability of the products.
The Company has made significant changes in its operations over the last
four years since moving to the new facility. These improvements have
significantly improved product yields and line speed while at the same time
improving product quality. The Company currently produces 400,000 to 500,000
pounds of its products per week while utilizing only 33% of its manufacturing
capacity. There are two complete production lines that run all of the bottled
products. In addition, the Company has a one gallon line for food service and
the capability to produce one and two quart pouches, one to three ounce portion
packs, and drums and large totes. As demand for the Company's products
increases, the Company intends to add an additional shift to meet the increased
demands.
The Company purchases the ingredients for its products from a variety of
sources, focusing on the freshest possible sources. These ingredients include
vegetables, milk, eggs and a variety of seasonings. The availability of
vegetables and other raw materials necessary for the manufacture of the
Company's products and the price of many of such materials are factors over
which the Company has little or no control except that the Company purchases
certain ingredients such as canola oil and sugar on a fixed price basis over a
set time period to avoid extreme price increases.
ADVERTISING, MARKETING AND DISTRIBUTION
Management believes, based on the number of grocery stores chains and
gourmet stores that carry its products, that the Renee's Gourmet-TM- line and
the Excelle line are available in over 1,500 retail outlets.
The Company utilizes its own marketing department under the direction of its
Chief Executive Officer, Arnold Unger, as well as independent marketing agencies
and brokers. The independent brokers generally are individuals and/or companies
with well established connections to grocery and gourmet food stores, as well as
other food service establishments including restaurants, hotels, hospitals, etc.
These brokers sell a variety of products produced by other manufacturers,
although they do not sell competing products. The brokers receive a commission
that ranges between 2% for sales of private label products and 5% for sales of
products from the Renee's Gourmet-TM- Line and the Excelle line. The brokers
each receive a territory and are responsible to ensure that each product is
properly code-dated and shelved. The Company's primary brokers are A.S. May and
Belmount for retail sales and C.W. Shasky for food service sales.
The Company's customer base is divided among retail and private label
customers, and food service establishments. Scott Hospitality, a food service
establishment, accounts for approximately 11% of the Company's sales. No other
customer accounts for more than 10% of the Company's sales Approximately 31% of
the Company's sales are to major retail customers, 18% are to major private
label customers, 16% are to food service establishments and the remaining 34%
are to smaller customers.
The Company markets and advertises all of its products through a combination
of in-store demonstrations and promotional ads on racks, signs, and inside
displays, national magazine ads, radio commercials, coupon circulars and food
shows. The Company believes that the key to merchandising is providing quality
products at reasonable prices to a variety of retail establishments to reach the
maximum amount of customers. The Company uses outside agencies in addition to
its in-house marketing department. The
24
<PAGE>
Company's employees and its outside agencies conduct sales demonstrations and
distribute point of sale materials, develop custom labels and designs for new
Renee's Gourmet-TM- product launches and handle customer relations and special
events. The outside agencies include Act Media, which conducts both sales
demonstrations and point of sale materials for the Company, Dollery Rudman,
which focuses on label development and design for new Renee's Gourmet-TM-
product launches, and McBlain and Associates, which handles customer and public
relations and special events.
The Company has been very successful marketing its products including those
sold under private label agreements, and hopes to continue to meet the
reputation that it believes it has gained in the industry for its quality
private label products and services. The Company has recently expanded into the
"club" business and has distributed its products to wholesaler stores, among
which are Price Club and Costco. The Company intends to aggressively pursue the
U.S. market, as well as other markets. The Company intends to use a portion of
the net proceeds of the Offering to increase its advertising and marketing
efforts. See "Use of Proceeds".
COMPETITION
The salad dressing market is highly competitive. The Company competes with
refrigerated dressings as well as shelf-stable products. Outside the
refrigerated sector of the industry, Kraft, Select, Hidden Valley and Weight
Watcher's remain large competitors in the retail section. While the Company does
produce shelf-stable products under the Excelle label and for private labels, it
is not a significant competitor in this area.
The Company's Renee's Gourmet-TM- brand products and Excelle products
compete with other larger and better capitalized food companies that manufacture
refrigerated dressings. The larger competitors who also place their products in
the refrigerated produce or dairy sections in the United States include Dean's
Foods which distributes Marie's brand salad dressings, T. Marzetti's, an
independent manufacturer, and Naturally Fresh, which three comprise
approximately 85% of the United States Market. The Company believes that its
competitive standing in the refrigerated section in Canada is maintained by its
ability to respond quicker and more individually to customers' needs than its
larger competitors.
The primary food service section competitors that the Company faces in
Canada are Kraft, Select, Hellmann's and Richardson's. These companies also
produce specialty dressings for restaurants.
The Company believes that it holds a competitive advantage because its
products are made utilizing primarily natural ingredients and are beneficial to
those who have health concerns, including those who are lactose intolerant,
diabetic, weight conscious or allergy-prone. The Company also believes that its
products are attractive to those who desire a flavorful variety of tastes and
enjoy different and unusual blends of ingredients. The Company believes that
these qualities will enable it to penetrate the United States market. Management
emphasizes the versatility of each product as a dressing, dip, sauce, spread or
marinade.
The private label industry is also highly competitive. Manufacturers compete
on price, quality and taste, and contracts are awarded based primarily on that
criterion. The Company has been successful in competing for private label
agreements with several supermarket chains and food service institutions.
There are also regional competitors that compete with the Company. The
Company endeavors to compete in the premium segment of the industry, by selling
high quality, innovative products with flavor and appearance which it believes
compare favorably with its competitors' products. Management intends to increase
its presence by increasing the variety of products offered, increasing its
advertising efforts, as well as its production capability, thereby increasing
name recognition of the Company's products.
25
<PAGE>
NEW PRODUCT DEVELOPMENT
The Company is constantly evaluating potential new products in order to
expand its line of products. The Company is reformulating recipes to develop new
flavors. The Company recently developed the Renee's Gourmet Naturally Light-TM-
line which is low in fat and calories to appeal to the growing weight and health
conscious market. The Company intends to introduce Renee's Gourmet-TM- brand
marinades and sauces for meat and seafood in the coming year. The Company is
currently investigating the possibility of converting many of its products to
the kosher designation. In addition, the Company may make acquisitions of
complementary companies or purchase the rights to distribute or manufacture a
particular product.
EMPLOYEES
As of May 31, 1997, the Company employs 52 persons, which includes 3 senior
executives, 11 managers, 13 support staff and 25 full-time non-unionized hourly
laborers. The Company has no unionized employees and believes that its
relationship with its employees is satisfactory.
PROPERTIES AND FACILITIES
The Company leases the Excelle plant, a 75,000 square foot facility located
in Toronto, Ontario. The lease was amended July 1, 1995 for a five-year term,
with an annual base rent of Cdn$105,000. The plant houses the Company's complete
production facilities, warehouse and gymnasium-sized cooler for storage, a
research and development department which includes a full lab, a shipping and
receiving department, order desk, customer service department and executive
offices. Management believes that this space is adequate for its production
needs in the foreseeable future as this facility operates at only 33% of its
capacity. Management also believes that there is ample room for expansion in the
future. The Company currently sublets certain unused space for approximately
Cdn$35,000 in rent per year. The Company has an option to purchase the building
and land for Cdn$2,300,000 (plus CPI increases since 1993) until March 1, 1998.
PATENTS AND TRADEMARKS
The Company holds trademarks in Canada on both "Renee's Gourmet-TM-" and
"Renee's Gourmet Naturally Light-TM-." The Company believes that its trademarks
have significant value and are an important factor in the marketing of its
products. The Company does not hold any patents on its recipes or manufacturing
processes. Management believes that it provides better protection of its recipes
and its market position from competitors by not patenting them, thereby keeping
them secret. Management also believes that its unique modifications and
improvements of its manufacturing processes are more appropriately protected by
remaining a trade secret rather than applying for a patent. The Company requires
all of its employees to execute confidentiality agreements. The Company cannot
guarantee that any of its recipes or processes would be protectable under a
patent.
LEGAL PROCEEDINGS
The Company has one claim against it from a former employee that was filed
in March, 1997 alleging wrongful termination. The suit which has been brought in
the Ontario Court (General Division) seeks total damages of $115,000, plus
interest. The Company believes that it has a meritorious defense and intends to
vigorously contest the action. The Company is not aware of any other material
legal proceedings now pending or threatened against the Company.
26
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Directors
and Executive Officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Arnold Unger......................................... 59 Chief Executive Officer and Co-Chairman
Renee Unger.......................................... 54 President and Co-Chairman
Frederick Burke...................................... 39 Chief Operating Officer, Chief Financial Officer
Secretary, and Director
Lori Gutmann......................................... 30 Manager of Retail Marketing and Sales and Director
Alysse Unger......................................... 28 Manager of Private Label Marketing and Sales and
Director
John Rothschild...................................... 47 Director
[TO BE DETERMINED]................................... Director
</TABLE>
Set forth below is a biographical description of each director and executive
officer of the Company based on information supplied by each of them.
Arnold Unger is a co-founder of the Company and has been its Chief Executive
Officer since the Company's inception in 1986. Prior to founding the Company, he
worked in the sales and marketing industry since 1970 for Global Incentives and
Aztec Building Company. He has lectured extensively at the University of Western
Ontario, Ryerson University, and York University on sales and marketing skills.
Arnold Unger has received several awards of industry distinction, including a
Gold Award at the Canadian Awards for Business Excellence.
Renee Unger is a co-founder of the Company and has been its President since
1986. She is the creator of all of the Company's original recipes. She has
received many awards of industry distinction including Entrepreneur of the Year,
and Gold Medal at the Canadian Business Excellence Awards in 1988, North York
Chamber of Commerce Business Woman of the Year, and Ontario Chamber of Commerce
Award of Merit. Renee Unger has been the keynote speaker at several business and
industry dinners and conferences, and has made television appearances on cooking
and daytime programs. She continues to head the Company's Research and
Development department, and Quality Control departments, as well as
participation in the administration of the Company as a manager.
Fred Burke joined the Company in 1994 as the Chief Operating Officer. He is
a Certified General Accountant, and is currently a member of the Board of
Governors and Certified General Accountants of Ontario. From 1987 until he
joined the Company, He was the Corporate Planning Director of Effem Foods, Ltd.
Prior to that he was the Manager of cost accounting for Robinhood Multifoods,
Inc. and an accountant for Canadian General Electric Company beginning in 1980.
Fred Burke presents seminars on personal and business strategic planning. He
holds positions on the Certified General Accountant board committees and
lectures on accounting and business development to business groups and local
universities.
Lori Gutmann has been with the Company since 1990 and is Manager of Retail
Marketing and Sales. In 1993, she earned a degree in Business Management from
Ryerson University.
Alysse Unger has been with the Company since 1985 and has been Manager of
Private Label Marketing and Sales since 1994. From 1988 to 1997 she was Research
and Development Director and Private Label Sales Manager for Excelle Brands Food
Corporation. In 1988, she graduated from York University in Toronto.
27
<PAGE>
John Rothschild has been a director of the Company since June 1997. Since
1994, he has been the President and Chief Executive Officer of Prime Restaurant
Group, Inc., a holding company of restaurant chains. From 1984 to 1994, he was
President of Rothschild Holding Limited. From 1980 to 1984, he was Assistant
Vice President of Kemp Investments, Ltd. From 1978 to 1980, he was a partner at
Rothschild & Musket. From 1973 to 1977, he was a senior field auditor for Price
Waterhouse in Toronto and Milan, Italy. John Rothschild, who is also a chartered
accountant, earned a Bachelor of Arts degree from University of Toronto in 1971
and a Master of Business Administration Degree from University of Westen Ontario
in 1973.
Lori Gutmann and Alysse Unger are daughters of Arnold Unger and Renee Unger.
The term of office of each Director is until the next annual meeting of
shareholders and until a successor is elected and qualified or until the
Director's earlier death, resignation or removal from office. Executive officers
hold office until their successors are chosen and qualified, subject to earlier
removal by the Board of Directors.
For the period of three years after the effective date of this registration
statement, the Company has agreed to invite a designee of the Representative to
attend all meetings of the board of directors, but such designee will not be
entitled to vote or be compensated. See "Underwriting".
COMMITTEES OF THE BOARD
The Company's Board of Directors will have an Audit Committee, comprised of
John Rothschild and Fred Burke and an independent director to be named later,
and a Compensation Committee, comprised of John Rothschild and Renee Unger and
an independent director to been named later.
COMPENSATION OF DIRECTORS
The Company has not paid compensation to any director for acting in such
capacity. The Company is currently reviewing its policy on compensation of
outside directors and may pay outside directors in the future.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company during each of the last two fiscal years to the Company's
Chief Executive Officer and to each of the Company's executive officers who
earned in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION
- -------------------------------------------------------------------- --------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Arnold Unger........................................................ 1997 $ 135,000 $ 20,000 $ 20,000
Chief Executive Officer and Co-Chairman 1996 70,000 11,500 20,000
1995 65,000 0 18,500
Renee Unger......................................................... 1997 $ 135,000 $ 20,000 $ 20,000
President and Co-Chairman 1996 70,000 11,500 20,000
1995 65,000 0 15,000
Fred Burke.......................................................... 1997 $ 85,000 $ 20,000 $ 15,000
Chief Operating Officer and Chief Financial Officer 1996 70,000 11,500 15,000
1995 61,500 0 10,000
</TABLE>
28
<PAGE>
EMPLOYMENT AGREEMENTS
On the Effective Date, Arnold Unger and Renee Unger, will both have
three-year employment agreements with the Company. Arnold Unger will be retained
as Chief Executive Officer and Vice president of Sales and Marketing at an
annual salary of $135,000. Renee Unger will be retained as President at an
annual salary of $135,000.
The employment agreements with Arnold Unger and Renee Unger provide that
upon the death of any of the two employees that two years full salary will be
paid to a designee of the employee. They also provide for reimbursement of
reasonable business expenses and 70% of their respective salaries for the
remainder of the term of the agreement in the event of disability. The agreement
also provides for the Company to maintain approximately Cdn$240,000 in key-man
insurance on the life of Arnold Unger. Currently, the Company owns and is
beneficiary of "key-man" term policy on Arnold Unger and Renee Unger for
Cdn$240,000 which has been assigned to secure the Company's financing facilities
with the National Bank of Canada.
Each of the above officers are entitled to bonuses based on achieving sales
and profitability as predetermined by the Board or compensation committee and
other subjective criteria as determined by the Board or compensation committee.
Arnold Unger and Renee Unger shall each receive $20,000 per year additional
compensation including a car allowance, insurance, retirement savings matched
contributions, and other perquisites.
Based upon any wrongful termination, which includes changes in control of
the Company (through an acquisition where any person acquires or announces a
tender offer or exchange for 25% of the Company, a sale of substantially all of
the assets or merger, acquisition of the Company or its consolidation with
another, or certain types of board changes), the Company shall pay the above, a
lump sum payment, based upon his or her then compensation, including benefits
and perquisites, from such termination. Such payment shall be the balance of
their respective compensation for the remainder of the term. If the payment is
in excess of $100,000, then such excess shall be payable in equal quarterly
payments with interest at the legal rate. The employment agreements will contain
non-compete provisions.
STOCK OPTION PLAN
In May, 1997, the board of directors and shareholders adopted the Intercorp
Excelle Inc. Stock Option Plan (the "1997 Plan"), pursuant to which 500,000
shares of Common Stock are reserved for issuance.
The 1997 Plan will be administered by the compensation committee or the
board of directors, who determine among other things, those individuals who
shall receive options, the time period during which the options may be partially
or fully exercised, the number of shares of Common Stock issuable upon the
exercise of the options and the option exercise price.
The 1997 Plan is for a period for ten years, expiring in May, 2007. Options
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide their skills and expertise to the Company. Options
granted under the 1997 Plan may be exercisable for up to ten years, may require
vesting, and shall be at an exercise price all as determined by the board.
Options are non-transferable except by the laws of descent and distribution or a
change in control of the Company, as defined in the 1997 Plan, and are
exercisable only by the participant during his or her lifetime. Change in
control includes (i) the sale of substantially all of the assets of the Company
and merger or consolidation with another, or (ii) a majority of the board
changes other than by election by the shareholders pursuant to board
solicitation or by vacancies filled by the board caused by death or resignation
of such person.
If a participant ceases affiliation with the Company by reason of death,
permanent disability or retirement at or after age 70, the option remains
exercisable for one year from such occurrence but not
29
<PAGE>
beyond the option's expiration date. Other termination gives the participant
three months to exercise, except for termination for cause which results in
immediate termination of the option.
Options granted under the 1997 Plan, at the discretion of the compensation
committee or the board, may be exercised either with cash, Common Stock having a
fair market equal to the cash exercise price, the participant's personal
recourse note, or with an assignment to the Company of sufficient proceeds from
the sale of the Common Stock acquired upon exercise of the Options with an
authorization to the broker or selling agent to pay that amount to the Company,
or any combination of the above.
The exercise price of an option may not be less than the fair market value
per share of Common Stock on the date that the option is granted in order to
receive certain tax benefits under the Income Tax Act of Canada (the "ITA"). The
exercise price of all future options will be at least 85% of the fair market
value of the Common Stock on the date of grant of the options. A benefit equal
to the amount by which the fair market value of the shares at the time the
employee acquires them exceeds the total of the amount paid for the shares or
the amount paid for the right to acquire the shares shall be deemed to be
received by the employee in the year the shares are acquired pursuant to
paragraph 7(1) of the ITA. Where the exercise price of the option is equal to
the fair market value of the shares at the time the option is granted, paragraph
110(1)(d) of the ITA allows a deduction from income equal to one quarter of the
benefit as calculated above. If the exercise price of the option is less than
the fair market value at the time it is granted, no deduction under paragraph
110(1)(d) is permitted. Options granted to any non-employees, whether directors
or consultants or otherwise will confer a tax benefit in contemplation of the
person becoming a shareholder pursuant to subsection 15(1) of the ITA.
Options may not be transferred by an optionee other than by will or the laws
of descent and distribution, and, during the lifetime of an optionee, the option
will be exercisable only the optionee.
Options under the 1997 Plan must be issued within ten years from the
effective date of the 1997 Plan.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the 1997 Plan.
The 1997 Plan may be terminated or amended at any time by the board of
directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the 1997 Plan may not be
increased without the consent of the shareholders of the Company.
In May 1997, the Board granted 200,000 Options under the 1997 Plan to five
individuals, including officers, directors and key employees. The Options are
exercisable at $3.50 per share for ten years expiring May 1, 2007. 40% of the
Options are immediately exercisable, an additional 30% become exercisable in May
1998 and all of the Options are exercisable in November 1998. See the Options
Grant Table below.
OPTION GRANTS
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/ EXERCISE
OPTIONS SARS GRANTED PRICE EXPIRATION
NAME GRANTED (#) TO EMPLOYEES ($/SH) DATE
- ---------------------------------------------------------- ------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C>
Arnold Unger.............................................. 50,000 25.0% $ 3.50 May 1, 2007
Renee Unger............................................... 50,000 25.0% $ 3.50 May 1, 2007
Fred Burke................................................ 50,000 25.0% $ 3.50 May 1, 2007
Alysee Unger.............................................. 25,000 12.5% $ 3.50 May 1, 2007
Lori Gutmann.............................................. 25,000 12.5% $ 3.50 May 1, 2007
</TABLE>
30
<PAGE>
PRINCIPAL STOCKHOLDERS AND SELLING SECURITYHOLDERS
The following table sets forth certain information, as of the date hereof,
and as adjusted to give effect to the Offering and the transactions contemplated
thereby, with respect to the beneficial ownership of the Common Stock by each
beneficial owner of more than 5% of the outstanding shares thereof, by each
director, each nominee to become a director and each executive named in the
Summary Compensation Table and by all executive officers, directors and nominees
to become directors of the Company as a group, both before and after giving
effect to the Offering. The table also sets forth certain information with
respect to persons for whom the Company is registering shares of Common Stock
for resale to the public ("Selling Securityholders"). Beneficial ownership of
the shares of Common Stock by such Selling Securityholders after this Offering
will depend on the number of shares sold by each Selling Securityholder.
PERCENTAGE OF OUTSTANDING COMMON STOCK BENEFICIALLY OWNED
<TABLE>
<CAPTION>
SHARES
NUMBER OF BENEFICIALLY
SHARES OF OWNED
COMMON STOCK NUMBER AFTER THE
NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER OF SHARES OFFERING
BENEFICIAL OWNER(1) OWNED OFFERING OFFERING OFFERED(4) NUMBER(5)
----------------------- -------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Arnold Unger(2)........................................ 1,170,000 37.1% 28.2% 25,000 1,145,000
Renee Unger(2)......................................... 1,170,000 37.1% 28.2% 25,000 1,145,000
Fred Burke(2).......................................... 20,000 * * 20,000 *
Lori Gutmann(3)........................................ 210,000 6.7% 5.1% 5,000 205,000
Alysse Unger(3)........................................ 210,000 6.7% 5.1% 5,000 205,000
Karen Unger............................................ 200,000 6.3% 4.8% 5,000 195,000
John Rothschild........................................ 0 0 0
All Executive Officers and Directors as a Group........ 2,980,000 95.7% 72.4%
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER(1) PERCENT
----------------------- ---------
<S> <C>
Arnold Unger(2)........................................ 27.7%
Renee Unger(2)......................................... 27.7%
Fred Burke(2).......................................... *
Lori Gutmann(3)........................................ 5.0%
Alysse Unger(3)........................................ 5.0%
Karen Unger............................................ 4.7%
John Rothschild........................................
All Executive Officers and Directors as a Group........
</TABLE>
- ------------------------
* Less than 1%
(1) Unless otherwise indicated, the address is c/o Intercorp Excelle Inc., 1880
Ormont Drive, Toronto, Ontario, Canada M9L 2V4.
(2) Includes 20,000 shares of Common Stock issuable upon exercise of the stock
options granted under the 1997 Stock Option Plan which are immediately
exercisable. See "Management--Stock Option Plan".
(3) Includes 10,000 shares of Common Stock issuable upon exercise of the stock
options granted under the 1997 Stock Option Plan which are immediately
exercisable. See "Management--Stock Option Plan".
(4) The Selling Securityholders may sell the shares of Common Stock from time to
time directly to purchasers, or through broker-dealers who may receive
compensation in the form of discounts or commissions from the Selling
Securityholders or purchasers. Sales of the shares of Common Stock may be
effected by broker-dealers in ordinary brokerage transactions or block
transactions on the Nasdaq SmallCap Market, through sales to one or more
dealers who may resell as principals, in privately negotiated transactions
or otherwise, at the market price prevailing at the time of sale, a price
related to such prevailing market price or at a negotiated price. Usual and
customary or specifically negotiated brokerage fees may be paid by the
Selling Securityholders in connection therewith. The Selling Securityholders
may be deemed to be "underwriters" within the meaning of the Act and any
profits realized by them may be deemed to be underwriting commissions. Any
broker-dealers that participate in the distribution of the shares of Common
Stock also may be deemed to be "underwriters," as defined in the Act, and
any commissions or discounts paid to them, or any profits realized by them
upon the resale of any securities purchased by them as principals, may be
deemed to be underwriting commissions or discounts under the Act. The sale
of the Common Stock by the Selling Securityholders is subject to the
prospectus delivery requirements of the Act.
(5) Assumes the sale of all shares offered by the Selling Securityholders.
31
<PAGE>
CERTAIN TRANSACTIONS
Arnold Unger, Chief Executive Officer and Co-Chairman of the Board and Renee
Unger, President and Co-Chairwoman of the Board, each have loaned to Excelle
Brands Food Corporation, a subsidiary of the Company $76,200 in March and July,
1994. These loans bear interest at the prime interest rate and are without any
specific repayment terms.
The loans are also subordinated to credit facilities which Excelle Brand
Foods Corporation ("Excelle"), a wholly-owned subsidiary of the Company, has
with National Bank of Canada ("NBC"). The NBC credit facility consists of a
Cdn$900,000 revolving demand loan, Cdn$1,332,536 in non-revolving demand loans,
all bearing interest at the banks prime rate plus 1% to 1.5% which at April 30,
1997 was 5.75% and a Cdn$350,000 U.S. currency forward contract. The NBC credit
facility is secured with the assets of the Company subject only to prior
encumbrances on specific fixed assets which are senior to NBC. See "Managements'
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" . Arnold Unger and Renee Unger have
each personally guaranteed the NBC credit facility to the extent of Cdn$250,000,
which is to be released if Excelle's debt to equity ratio is no greater than 2
to 1. The loans are additionally secured by a collateral mortgage on Renee
Unger's personal residence. In addition, the term life insurance of Cdn$200,000
on the life of Arnold Unger and for Cdn$150,000 on the life of Renee Unger, each
of whom are the beneficiaries of their respective insurance policy which
premiums are paid for by the Company, have been assigned to NBC as further
security. NBC also holds all the voting equity of the subsidiary companies of
the Company. Voting control of the Company must remain with the Ungers,
including their family trusts and children, absent NBC's prior written consent.
See "Principal Shareholders and Selling Securityholders".
The Company has a loan with Business Development Bank of Canada ("BDC"). The
principal amount owed as of June 30, 1997 is approximately $68,000 bearing
interest at 2.5% above the bank's floating base interest rate. The loan is
secured by the assets of Excelle and Intercorp Foods Ltd., wholly-owned
subsidiaries of the Company. The loan is further secured by personal guarantees
by Arnold Unger and Renee Unger in the amount of $50,000 each, and assignment of
loans owed to Arnold Unger and Renee Unger. A portion of the proceeds of this
Offering is allocated to repayment of the BDC loan.
32
<PAGE>
DESCRIPTION OF SECURITIES
The total authorized capital stock of the Company consist of an unlimited
number of shares of Common Stock, with no par value, and unlimited number of
Preferred Stock, with no par value per share. The following descriptions contain
all material terms and features of the Securities of the Company, are qualified
in all respects by reference to the Certificate of Incorporation and By laws of
the Company, copies of which are filed as Exhibits to the Registration Statement
of which this Prospectus is a part.
COMMON STOCK
The Company is authorized to issue an unlimited number of shares of Common
Stock, no par value per share, of which as of the date of this Prospectus
3,075,000 shares of Common Stock are outstanding, not including the Shares
offered herein. All outstanding shares of common stock are, and all shares of
Common Stock to be outstanding upon the closing of this Offering will be validly
authorized and issued, fully paid, and non-assessable.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Holders of Common
Stock are entitled to receive ratably dividends as may be declared by the board
of directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining, if any, after
payment of liabilities. Holders of Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any other securities.
Pursuant to the Business Corporation Act, Ontario ("BCA"), a shareholder of
an Ontario Corporation has the right to have the corporation pay the shareholder
the fair market value for his shares of the corporation in the event such
shareholder dissents to certain actions taken by the corporation such as
amalgamation or the sale of all or substantially all of the assets of the
corporation and such shareholder follows the procedures set forth in the BCA.
WARRANTS
Warrants will be issued pursuant to a Warrant Agreement between the Company
and Continental Stock Transfer & Trust Company (the "Transfer and Warrant
Agent") and will be in registered form. Each Warrant entitles its holder to
purchase, during the four year period commencing on the date of this Prospectus,
one share of Common Stock at an exercise price of $6.00 per share, subject to
adjustment in accordance with the anti-dilution and other provision referred to
below.
The Warrants may be redeemed by the Company at any time commencing one year
from the date of this Prospectus (or earlier with the consent of the
Representative) and prior to their expiration, at a redemption price of $.10 per
Warrant, on not less than 30 days' prior written notice to the holders of such
Warrants, provided that the closing bid price of the Common Stock if traded on
the Nasdaq SmallCap Market, or the last sale price per share of the Common
Stock, if listed on the Nasdaq National Market or on a national exchange, is at
least 150% ($9.00 per share, subject to adjustment) of the exercise price of the
Warrants for a period of 20 consecutive business days ending on the third day
prior to the date the notice of redemption is given. Holders of Warrants shall
have exercise rights until the close of the business day preceding the date
fixed for redemption.
The exercise price and the number of shares of Common Stock purchasable upon
the exercise of the Warrants are subject to adjustment upon the occurrence of
certain events, including stock dividends, stock splits, combinations or
classification of the Common Stock. The Warrants do not confer upon holders any
voting or any other rights of shareholders of the Company.
No Warrant will be exercisable unless at the time of exercise the Company
has filed with the Commission a current prospectus covering the issuance of
Common Stock issuable upon the exercise of the Warrant and the issuance of
shares has been registered or qualified or is deemed to be exempt form
33
<PAGE>
registration or qualification under the securities laws of the state of
residence of the holder of the Warrant. The Company has undertaken to use its
best efforts to maintain a current prospectus relating to the issuance of shares
of Common Stock upon the exercise of the Warrants until the expiration of the
Warrants, subject to the terms of the Warrant Agreement. While it is the
Company's intention to maintain a current prospectus, there is no assurance that
it will be able to do so. See "Risk Factors-Current Prospectus and State Blue
Sky Registration Required to Exercise Warrants".
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of an
unlimited number of shares of Preferred Stock with designations, rights and
preferences determined from time to time by its Board of Directors. Accordingly,
the Company's Board of Directors is empowered, without stockholder approval, to
issue Preferred Stock with dividend, liquidation, conversion, or other rights
that could adversely affect the rights of the holders of the Common Stock.
Although the Company has no present intention to issue any shares of its
Preferred Stock, there can be no assurance that it will not do so in the future.
BRIDGE WARRANTS
In May 1997 the Company issued an aggregate of 175,000 Warrants (the "Bridge
Warrants"). The Bridge Warrants entitle the holder to purchase one share of
Common Stock for $3.75 per share for a period of four years. The Bridge Warrants
are redeemable by the Company at $.10 per Warrant in the event the Company does
not complete an initial public offering of its securities by December 31, 1997.
The Bridge Warrants are exchangeable at the option of the holder for a like
number of warrants with identical terms as the Warrants.
REGISTRATION RIGHTS
The Company has granted holders of the 175,000 shares of Common Stock
purchased in connection with the Bridge Financing piggyback registration rights
with respect to certain offerings of the Company registered under the Securities
Act following the Effective Date, to the extent the inclusion of such shares is
permitted by the managing underwriter for such offering. The Company has no
present plans to file any such additional or new registration statement. This
Common Stock is also redeemable at $.50 per share if the Company does not
complete a public offering of its securities by December 31, 1997.
Bridge Warrants, which are restricted from public sale for at least one year
through May 22, 1998, have piggyback registration rights and may be exchanged at
the option of the warrantholder, for Warrants that are being offered hereby,
which Warrants are exercisable at $6.00 per share and will be tradeable.
TRANSFER AGENT, REGISTRAR AND REDEEMABLE WARRANT AGENT
The transfer agent, registrar and warrant agent for the Common Stock and
Warrants is Continental Stock Transfer & Trust Company, 2 Broadway, New York,
New York 10005.
34
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have 4,075,000
shares of Common Stock outstanding. In addition, the Company has reserved for
issuance 500,000 shares upon the exercise of options eligible for grant under
the Company's Stock Option Plan, 200,000 of which have been granted. Of the
shares to be issued and outstanding after this Offering, the 1,000,000 Shares
offered hereby (plus any additional Shares sold upon exercise of the
Over-Allotment Option) will be freely tradeable without restriction or further
registration under the Act, except for any shares purchased or held by an
"affiliate" of the Company (in general, a person who has a control relationship
with the Company) which will be subject to the limitations of Rule 144 adopted
under the Act ("Rule 144"). 65,000 shares of Common Stock are being registered
along with the securities being sold in this Offering for certain officers and
directors of the Company and may be immediately resold. The remaining 3,010,000
shares of Common Stock are "restricted securities" as that term is defined under
Rule 144, and may not be sold unless registered under the Act or exempted
therefrom. Of the 3,010,000 restricted shares, 2,835,000 are currently eligible
to be sold in accordance with the exemptive provisions and the volume
limitations of Rule 144, however, the owners of such shares have agreed with the
Representative not to sell or otherwise dispose their shares for 18 months from
the Effective Date without the consent of the Representative, except pursuant to
gifts or pledges in which the donee or pledgee agrees to be bound by such
restrictions. The remaining 175,000 shares of Common Stock outstanding are
eligible for resale under Rule 144 on May 22, 1998, subject to a 12 month lock
up during which such shares may not be sold without the prior written consent of
the Representative.
All of the Company's directors and executive officers, (who hold in the
aggregate 2,900,000 shares), have agreed not to sell, offer to sell or otherwise
dispose of the 2,835,000 shares of the Company's Common Stock not being
registered concurrently with this Offering until 18 months from the Effective
Date, except pursuant to gifts or pledges in which the donee or pledgee agrees
to be bound by such restrictions, without the prior written consent of the
Representative. These agreements are enforceable only by the parties thereto,
and are subject to rescission or amendment at any time without approval of other
stockholders.
Sales of the Company's Common Stock by certain of the present stockholders
in the future, under Rule 144, may have a depressive effect on the price of the
Company's Common Stock.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following describes the principal United States federal income tax
consequences of the purchase, ownership and disposition of the Common Stock and
the Warrants and upon the exercise, redemption or expiration of the Warrants by
a Warrant holder, that is a citizen or resident of the United States or a United
States domestic corporation or that otherwise will be subject to United States
federal income tax (a "U.S. Holder"). This summary is based on the United States
Internal Revenue Code of 1986, as amended (the "Code"), administrative
pronouncements, judicial decisions and existing and proposed Treasury
Regulations, changes to any of which subsequent to the date of this Prospectus
may affect the tax consequences described herein. This summary discusses only
the principal United States federal income tax consequences to those beneficial
owners holding the securities as capital assets within the meaning of Section
1221 of the Code and does not address the tax treatment of a beneficial owner
that owns 10% or more of the Common Stock. It is for general guidance only and
does not address the consequences applicable to certain specialized classes of
taxpayers such as certain financial institutions, insurance companies, dealers
in securities or foreign currencies, or United States persons whose functional
currency (as defined in Section 985 of the Code) is not the United States dollar
persons considering the purchase of these securities should consult their tax
advisors with regard to the application of the United States and other income
tax laws to their particular situations. In particular, a U.S. Holder should
consult his tax advisor with regard to the application of the United States
federal income tax laws to his situation.
35
<PAGE>
COMMON STOCK
A U.S. Holder generally will realize, to the extent of the Company's current
and accumulated earnings and profits, foreign source ordinary income on the
receipt of cash dividends, if any, on the Common Stock equal to the United
States dollar value of such dividends determined by reference to the exchange
rate in effect on the day they are received by the U.S. Holder (with the value
of such dividends computed before any reduction for any Canadian withholding
tax). U.S. Holders should consult their own tax advisors regarding the treatment
of foreign currency gain or loss, if any, on any dividends received which are
converted into United States dollars on a date subsequent to receipt. Subject to
the requirements and limitations imposed by the Code. a U.S. Holder may elect to
claim Canadian tax withheld or paid with respect to dividends on the Common
Stock as a foreign credit against the United States federal income tax liability
of such holder. Dividends on the Common Stock generally will constitute "passive
income" or, in the case of certain U.S. Holders, "financial services income" for
United States foreign tax credit purposes. U.S. Holders who do not elect to
claim any foreign tax credits may claim a deduction for Canadian income tax
withheld. Dividends paid on the Common Stock will not be eligible for the
dividends received deduction available in certain cases to United States
corporations.
Upon a sale or exchange of a share of Common Stock, a U.S. Holder will
recognize gain or loss equal to the difference between the amount realized on
such sale or exchange and the tax basis of such Common Stock. Any such gain or
loss will be capital gain or loss, and will be long term capital gain or loss if
at the time of sale or exchange the Common Stock has been held for more than one
year.
WARRANTS
No gain or loss will be recognized by the holder of a Warrant upon the
exercise of the Warrant. The cost basis of the Common Stock acquired upon such
exercise will be the cost basis of the Warrant plus any additional amount paid
upon the exercise of the Warrant. Gain or loss will be recognized upon the
subsequent sale or exchange of the Common Stock acquired by the exercise of the
Warrant, measured by the difference between the amount realized upon the sale or
exchange and the cost basis of the Common Stock so acquired.
If a Warrant is not exercised, but is sold or exchanged (whether pursuant to
redemption or otherwise), gain or loss will be recognized upon such event,
measured by the difference between the amount realized by the holder of the
Warrant as a result of sale, exchange or redemption and the cost basis of the
Warrant
If a Warrant is not exercised and is allowed to expire, the Warrants will be
deemed to be sold or exchanged on the date of expiration. In such event, the
holder of the Warrant will recognize a loss to the extent of the cost basis of'
the Warrant.
Generally, any gain or loss recognized as a result of the foregoing will be
a capital gain or loss and will either be long-term or short-term depending upon
the period of time the Common Stock sold or exchanged or the Warrant sold,
exchanged, redeemed, or allowed to expire, as the case may be, was held. A
holding period of more than one year results in long-term gain or loss
treatment. If a Warrant is exercised, the holding period of the Common Stock so
acquired will not include the period during which the Warrant was held.
THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD
NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR AND NO
REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR
IS MADE.
36
<PAGE>
INVESTMENT CANADA ACT
The Investment Canada Act is a Federal Canadian statute which regulates the
acquisition of control of existing Canadian businesses and the establishment of
new Canadian businesses by an entity that is a "non-Canadian" as that term is
defined in the Investment Canada Act.
The Company believes that it is not currently a "non-Canadian" for purposes
of the Investment Canada Act. If the Company were to become a "non-Canadian" in
the future, acquisitions of control of Canadian businesses by the Company would
become subject to the Investment Canadian Act. Generally, the direct acquisition
by a "non-Canadian" of an existing Canadian business with gross assets of
$5,000,000 or more is reviewable under the Investment Canada Act, with a
threshold of $168 million for 1996 for "NAFTA investors" as defined under the
Investment Canada Act.
Indirect acquisitions of existing Canadian businesses (with gross assets
over certain threshold levels) as well as acquisitions of businesses related to
Canada's cultural heritage or national identity (regardless of the value of
assets involved) may also be reviewable under the Investment Canada Act. In
addition, acquisitions of control of existing investments to establish new,
unrelated businesses are not generally reviewable but do require that a notice
of the investment be given under the Investment Canada Act. An investment in a
new business that is related to the non-Canadian's existing business in Canada
is not notifiable under the Investment Canada Act unless such investment relates
to Canada's cultural heritage or national identity.
Investments which are reviewable under the Investment Canada Act are
reviewed by the Minister, designated as being responsible for the administration
of the Investment Canada Act. Reviewable investments may not be implemented
prior to the Minister determining that the investment is likely to be of "net
benefit to Canada" based on the criteria set out in the Investment Canada Act.
37
<PAGE>
UNDERWRITING
The Company has agreed to sell, and the Underwriters have severally and not
jointly agreed, subject to the time and conditions of the Underwriting
Agreement, to purchase from the Company on a firm commitment basis, the
respective number of Shares and Warrants set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
--------------------------
<S> <C> <C>
UNDERWRITER COMMON STOCK WARRANTS
- ------------------------------------------------------------------------------------- -------------- ----------
Sharpe Capital, Inc
Aegis Capital Corp
-------------- ----------
Total............................................................................ 1,000,000 1,000,000
-------------- ----------
-------------- ----------
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Shares and Warrants to the public at the public offering price set forth on the
cover page of this Prospectus and that they may allow to selected dealers who
are members of the NASD, concessions of not in excess of $.20 per Share and $0
per Warrant, of which not more than $.10 per Share and $0 per Warrant may be
re-allowed to certain other dealers who are members of the NASD. After the
public offering, the public prices, concessions and reallowances may be changed
by the Underwriters.
The Underwriting Agreement further provides that the Underwriters will
receive a non-accountable expense allowance of 3% of the aggregate public
offering price of the Shares and Warrants sold hereunder (including any Shares
and Warrants sold pursuant to the Underwriters' Over-Allotment Option), which
allowance amounts to $153,000 (or $175,950, if the Underwriters' Over-Allotment
Option is exercised in full), of which $50,000 has been paid to date.
The Company has granted to the Underwriters the Over-Allotment Option, which
is exercisable for a period of 45 days after the Closing, to purchase up to an
aggregate 150,000 additional Shares and 150,000 additional Warrants (up to 15%
of the Shares and Warrants being offered) at the public offering price, less
underwriting discounts and commissions, solely to cover over-allotments, if any.
The Representative has informed the Company that the Underwriters will not
make sales of the Shares and Warrants offered by this Prospectus to accounts
over which they exercise discretionary authority.
The Company has agreed to sell to the Underwriters for a nominal
consideration the Underwriters' Warrant to purchase 100,000 Shares and 100,000
Warrants, exclusive of the Over-Allotment Option. The Underwriters' Warrant will
be nonexercisable for one year after the date of this Prospectus. Thereafter,
for a period of four years, the Underwriters' Warrant will be exercisable at
$6.00 per Share of Common Stock and $.12 per Warrant. The Warrants underlying
the Underwriter's Warrant will be substantially identical to the Warrants
offered to the public except they are not subject to redemption by the Company
until the Underwriters' Warrant has been exercised and the underlying Warrants
are outstanding. The Underwriters' Warrant is not transferable for a period of
one year after the date of this Prospectus, except to officers and stockholders
of the Underwriters and to members of the selling group and their officers and
partners. The Company has agreed to file, during the four year period beginning
one year from the Effective Date of this Prospectus, on one occasion at the
Company's cost, at the request of the holders of a majority of the Underwriters'
Warrant and the underlying shares of Common Stock and Warrants, and to use its
best efforts to cause to become effective, a post-effective amendment to the
Registration Statement or a new registration statement under the Securities Act,
as required to permit the public sale of Common Stock and Warrants issued or
issuable upon exercise of the Underwriters' Warrant. In addition, the Company
has agreed to give advance notice to holders of the Underwriters' Warrant of its
intention to file certain registration statements commencing one year and ending
four years after the Effective Date, and in such case, holders of such
Underwriters' Warrant or underlying shares of Common Stock and Warrants shall
38
<PAGE>
have the right to require the Company to include all or part of such shares of
Common Stock and Warrants underlying such Underwriters' Warrant in such
registration statement at the Company's expense.
For the life of the Underwriters' Warrant, the holders thereof are given, at
nominal costs, the opportunity to profit from a rise in the market price of the
Company's securities with a resulting dilution in the interest of other
shareholders. Further, the holders may be expected to exercise the Underwriters'
Warrant at a time when the Company would in all likelihood be able to obtain
equity capital on terms more favorable than those provided in the Underwriters'
Warrant.
The Company has agreed that upon closing of this Offering, it will for a
period of not less than three years. invite a designee of the Representative to
attend all meetings of the board of directors. Such designee will be entitled to
the same notices and communications sent by the Company to its directors and to
attend directors meetings, but will not be entitled to vote or be compensated
therefor.
The Company has agreed to retain the Underwriters as financial consultants
for a period of three years to commence on the closing of this Offering, at a
monthly fee of $3,000, all of which ($108,000) shall be payable in advance on
the closing of the Offering. Pursuant to this agreement, the Underwriters will
be obligated to provide general financial advisory services to the Company on an
"as needed" basis with respect to possible future financing or acquisitions by
the Company and related matters. The agreement does not require the Underwriters
to provide any minimum number of hours of consulting services to the Company.
The public offering price of the Shares and Warrants offered hereby and the
exercise price and other terms of the Warrants have been determined by
negotiation between the Company and the Underwriters. Factors considered in
determining the offering price of the Shares and Warrants offered hereby and the
exercise price of the Warrants included the business in which the Company is
engaged, the Company's financial condition, an assessment of the Company's
management, the general condition of the securities markets and the demand for
similar securities of comparable companies.
The Company has agreed, for a period of one year from the date of this
Prospectus not to issue any shares of Common Stock, Warrants or any options or
other rights to purchase Common Stock without the prior written consent of the
Representative, except Warrants to be issued upon closing of this Offering, as
discussed herein, Notwithstanding the foregoing, the Company may issue shares
upon exercise or conversion of any options under the 1997 Plan up to 10% of the
Company's outstanding Common Stock immediately after the closing of this
Offering. Except for the 65,000 shares of Common Stock being registered
concurrently with this Offering, Arnold Unger, Renee Unger, Lori Gutmann, Karen
Unger, Alysee Unger and the Unger Family Trust, who own in the aggregate
2,900,000 shares of Common Stock, have agreed not to publicly sell or otherwise
dispose of any of their Common Stock for a period of 18 months following the
Effective date without the consent of the Underwriters which most likely will
not be granted earlier than three months from the date of this Prospectus and
would be subject to the nature of the market for the Company's securities, the
volume and price of the Common Stock, and the operations and financial condition
of the Company.
In connection with this Offering, the Underwriters and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Common Stock and Warrants.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock or Warrants for the purpose of stabilizing their
respective market prices. The Underwriters also may create a short position for
the account of the Underwriters by selling more shares of Common Stock or
Warrants in connection with the Offering than they are committed to purchase
from the Company, and in such case may purchase shares of Common Stock or
Warrants in the open market following completion of the Offering to cover all or
a portion of such short position. The Underwriters may also cover all or a
portion of such short position by exercising the Over-Allotment Option. In
addition, the Underwriters may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from
39
<PAGE>
an Underwriter (or dealer participating in the Offering) for the account of
other Underwriters, the selling concession with respect to shares of Common
Stock and Warrants that are distributed in the Offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock and Warrants at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are undertaken they may be discontinued at
any time.
Commencing one year after the date of this Prospectus, the Company will pay
the Underwriter a fee of 5% of the exercise price of each Warrant exercised,
provided (i) the market price of the Common Stock on the date the Warrant was
exercised was greater than the Warrant exercise price on that date; (ii) the
exercise price of the Warrant was solicited by a member of the NASD; (iii) the
Warrant was not held in discretionary account; (iv) the disclosure of
compensation arrangements was made both at the time of this Offering and at the
time of exercise of the Warrant; (v) the solicitation of the exercise of the
Warrant was not a violation of Regulation M promulgated under the Exchange Act;
and (vi) either Underwriter is designated in writing as the broker. The
Underwriters and any other soliciting broker-dealers may be prohibited from
engaging in any market-making activities or solicited brokerage activities with
regard to the Company's securities during the periods prescribed by Regulation
M, five business days (or other applicable period as Regulation M may provide)
before the solicitation of the exercise of any Warrant until the later of the
termination of such solicitation activity or the termination of any right the
Underwriters and any other soliciting broker/dealer may have to receive a fee
for the solicitation of the exercise of the Warrants.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
this Offering, including liabilities under the Securities Act.
The foregoing is a summary of the material terms of the Underwriting
Agreement, the Underwriters' Warrant and the Consulting Agreement. Reference is
made to the copies of the Underwriting Agreement, the Underwriters' Warrant and
the Consulting Agreement, which are filed as exhibits to the Registration
Statement of which this Prospectus forms a part.
40
<PAGE>
LEGAL OPINIONS
Certain legal matters relating to Canadian law, including the validity of
the issuance of the Common Stock and Warrants offered herein, will be passed
upon for the Company by Wildeboer Rand Thomson Apps & Dellelce. Certain legal
matters in connection with the Offering will be passed upon for the Company by
its United States counsel, Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP,
101 East 52nd Street, New York, New York 10022. Certain legal matters will be
passed upon for the Underwriters by Singer Zamansky LLP, 40 Exchange Place, New
York, New York 10005.
EXPERTS
The combined financial statements of Excelle Brand Foods Corporation and
Intercorp Foods Ltd. at January 31, 1997, and for each of the two fiscal years
in the period ended January 31, 1996 and 1995, appearing in this Prospectus and
Registration Statement have been audited by Schwartz Levitsky Feldman, Chartered
accountants, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
CONCURRENT OFFERING
The registration statement of which this Prospectus forms a part also covers
65,000 shares of Common Stock being offered by the Selling Securityholders made
pursuant to the Selling Securityholders' Prospectus. See "Principal Stockholders
and Selling Securityholders".
41
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Act with respect to the Common Stock offered hereby. This Prospectus omits
certain information contained in the Registration Statement and the exhibits
thereto, and references is made to the Registration Statement and the exhibits
thereto for further information with respect to the Company and the Common Stock
offered hereby. Statements contained herein concerning the provisions of any
documents are not necessarily complete, and in each instance reference is made
to the copy of such document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference. The
Registration Statement, including exhibits and schedules filed therewith, may be
inspected without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and its public reference facilities in New York, New York and Chicago,
Illinois upon payment of the prescribed fees. Electronic registration statements
filed through the Electronic Data Gathering, Analysis, and Retrieval System are
publicly available through the Commission's Website (http://www.sec.gov). At the
date hereof, the Company was not a reporting company under the Securities
Exchange Act of 1934, as amended.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The by-laws of the Company provide that the Company shall indemnify to the
fullest extent permitted by Canadian law directors and officers (and former
officers and directors) of the Company. Such indemnification includes all costs
and expenses and charges reasonably incurred in connection with the defense of
any civil, criminal or administrative action or proceeding to which such person
is made a party by reason of being or having been an officer or director of the
Company if such person was substantially successful on the merits in his or her
defense of the action and he or she acted honestly and in good faith with a view
to the best interests of the Company, and if a criminal or administrative action
that is enforced by a monetary penalty, such person had reasonable grounds to
believe his or her conduct was lawful.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
this Offering, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
and the Underwriters pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses,
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person or by the Underwriters in connection
with the securities being registered, the Company will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
42
<PAGE>
INDEX TO
COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... F-2
Combined Balance Sheets.............................................................. F-3
Combined Statements of Income........................................................ F-4
Combined Statements of Cash Flows.................................................... F-5
Combined Statements of Stockholders' Equity.......................................... F-6
Notes to Combined Financial Statements............................................... F-7
Review Engagement Report............................................................. F-15
Interim Combined Balance Sheets...................................................... F-16
Interim Combined Statements of Income................................................ F-17
Interim Combined Statements of Cash Flow............................................. F-18
Interim Combined Statements of Stockholders' Equity.................................. F-19
Notes to Interim Combined Financial Statements....................................... F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Excelle Brands Food Corporation/Intercorp Foods Ltd.
We have audited the accompanying combined balance sheets of Excelle Brands
Food Corporation/ Intercorp Foods Ltd. (incorporated in Canada) as at January
31, 1997 and 1996 and the related combined statements of income, cash flows and
changes in stockholders' equity for the years ended January 31, 1997, 1996 and
1995. These combined financial statements are the responsibility of the
management of Excelle Brands Food Corporation and Intercorp Foods Ltd. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Excelle Brands Food
Corporation/Intercorp Foods Ltd. as at January 31, 1997 and 1996 and the results
of its operations and its cash flows for the years ended January 31, 1997, 1996
and 1995, in conformity with generally accepted accounting principles in the
United States of America.
Toronto, Ontario /s/ SCHWARTZ LEVITSKY FELDMAN
March 12, 1997 Chartered Accountants
F-2
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
COMBINED BALANCE SHEETS
AS OF JANUARY 31
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
ASSETS
CURRENT ASSETS
Accounts receivable (note 2).......................................................... 578,210 717,581
Investment tax credits recoverable.................................................... 184,755 136,413
Inventory (note 3).................................................................... 729,604 621,080
Income taxes recoverable.............................................................. -- 27,189
Prepaid expenses and sundry assets.................................................... 79,198 39,478
---------- ----------
Total current assets.................................................................. 1,571,767 1,541,741
PROPERTY, PLANT AND EQUIPMENT (note 4).................................................. 1,310,863 1,291,115
---------- ----------
Total assets.......................................................................... 2,882,630 2,832,856
---------- ----------
---------- ----------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 5)............................................................ 110,632 250,840
Accounts payable and accrued expenses (note 6)........................................ 834,255 1,007,052
Income taxes payable.................................................................. 5,864 --
Current portion of long-term debt..................................................... 253,716 231,846
---------- ----------
Total current liabilities............................................................. 1,204,467 1,489,738
LONG-TERM DEBT (note 7)................................................................. 591,205 599,023
DUE TO DIRECTORS (note 8)............................................................... 154,990 81,712
DUE TO PARENT COMPANY................................................................... -- 70,299
DEFERRED INCOME TAXES (note 12)......................................................... 119,726 87,319
---------- ----------
Total liabilities..................................................................... 2,070,388 2,328,091
---------- ----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 9).................................................................. 160 160
RETAINED EARNINGS....................................................................... 844,011 550,050
CUMULATIVE TRANSLATION ADJUSTMENTS...................................................... (31,929) (45,445)
---------- ----------
Total stockholders' equity............................................................ 812,242 504,765
---------- ----------
Total liabilities and stockholders' equity............................................ 2,882,630 2,832,856
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
$ $ $
SALES.................................................................... 10,459,655 8,457,288 8,380,776
Trade expenditures................................................... 876,139 711,317 825,539
------------ ---------- ----------
NET SALES................................................................ 9,583,516 7,745,971 7,555,237
Cost of sales........................................................ 6,723,795 5,675,567 5,376,395
------------ ---------- ----------
GROSS PROFIT............................................................. 2,859,721 2,070,404 2,178,842
------------ ---------- ----------
OPERATING EXPENSES
Selling.............................................................. 1,327,760 937,309 1,253,972
General and administrative........................................... 749,366 628,473 611,090
Research and development cost (note 10).............................. 12,823 91,628 59,783
------------ ---------- ----------
Total operating expenses............................................. 2,089,949 1,657,410 1,924,845
------------ ---------- ----------
OPERATING INCOME......................................................... 769,772 412,994 253,997
INTEREST EXPENSE......................................................... 77,124 86,233 78,181
AMORTIZATION............................................................. 285,320 230,776 298,748
------------ ---------- ----------
INCOME (LOSS) BEFORE UNUSUAL ITEMS....................................... 407,328 95,985 (122,932)
Unusual items (note 11).............................................. -- 401,086 --
------------ ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES........................................ 407,328 497,071 (122,932)
Income taxes (recoverable) (note 12)................................. 113,367 75,640 (5,600)
------------ ---------- ----------
NET INCOME (LOSS)........................................................ 293,961 421,431 (117,332)
------------ ---------- ----------
------------ ---------- ----------
NET INCOME PER WEIGHTED AVERAGE COMMON SHARE............................. 1,469.81 2,107.16 (586.66)
------------ ---------- ----------
------------ ---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING..................... 200 200 200
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
$ $ $
Cash flows from operating activities:
Net Income (loss)........................................................... 293,961 421,431 (117,332)
---------- ---------- ----------
Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:
Amortization.............................................................. 285,320 230,776 298,748
Gain on disposal property, plant and equipment............................ (9,350) -- --
Loss on write off of deferred charge...................................... -- 76,606 --
Decrease/(increase) in accounts receivable................................ 151,567 (221,540) (38,014)
Increase in investment tax credits........................................ (45,112) (53,439) (83,461)
Decrease/(increase) in inventory.......................................... (95,178) 138,595 (171,249)
Decrease/(increase) in prepaid expenses................................... (38,473) 29,800 (22,756)
Increase/(decrease) in accounts payable and accrued expenses.............. (190,191) (850,110) 436,064
Increase in income taxes payable/recoverable.............................. 33,177 21,480 --
Increase/(decrease) in deferred income taxes.............................. 30,322 75,562 (5,600)
---------- ---------- ----------
Total adjustments......................................................... 122,082 (552,270) 413,732
---------- ---------- ----------
Net cash (used in)/provided by operating activities....................... 416,043 (130,839) 296,400
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from disposal of property, plant and equipment..................... 14,229 -- --
Purchases of property, plant and equipment.................................. (284,710) (112,555) (396,891)
Additions to deferred charges............................................... -- -- (76,982)
---------- ---------- ----------
Net cash used in investing activities....................................... (270,481) (112,555) (473,873)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from advances to directors......................................... 70,804 -- 108,274
Advances by (repayment to) advances by parent company....................... (70,804) -- 51,192
Long-term debt borrowings/(repayments)...................................... (2,204) 314,317 108,303
---------- ---------- ----------
Net cash (used in)/provided by financing activities......................... (2,204) 314,317 267,769
---------- ---------- ----------
Effect of foreign currency exchange rate changes............................ (3,150) (9,779) 20,705
---------- ---------- ----------
Net increase in cash and cash equivalents................................... 140,208 61,144 111,001
Cash and cash equivalents (bank indebtedness)
Beginning of year......................................................... (250,840) (311,984) (422,985)
---------- ---------- ----------
End of year............................................................... (110,632) (250,840) (311,984)
---------- ---------- ----------
---------- ---------- ----------
Income taxes paid (refunds received)........................................ (87,312) (18,241) 275
---------- ---------- ----------
---------- ---------- ----------
Interest paid............................................................... 77,124 86,233 78,181
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------
<S> <C> <C> <C> <C>
CUMULATIVE
NUMBER OF RETAINED TRANSLATION
SHARES AMOUNT EARNINGS ADJUSTMENTS
----------------- ----------- ----------- -----------
<CAPTION>
$ $ $
<S> <C> <C> <C> <C>
Balance as of January 31, 1994................................ 200 160 245,951 (39,226)
Foreign currency translation.............................. -- -- -- (7,981)
Net loss for the year..................................... -- -- (117,332) --
--- --- ----------- -----------
Balance as of January 31, 1995................................ 200 160 128,619 (47,207)
Foreign currency translation.............................. -- -- -- 1,762
Net income for the year................................... -- -- 421,431 --
--- --- ----------- -----------
Balance as of January 31, 1996................................ 200 160 550,050 (45,445)
Foreign currency translation.............................. -- -- -- 13,516
Net income for the year................................... -- -- 293,961 --
--- --- ----------- -----------
Balance as of January 31, 1997................................ 200 160 844,011 (31,929)
--- --- ----------- -----------
--- --- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
These financial statements combine the accounts of two affiliated companies.
All material inter-company accounts and transactions have been eliminated.
b) Principle Activities
The companies, Excelle Brands Foods Corporation and Intercorp Foods Ltd.,
were incorporated in Canada on February 7, 1987 and December 20, 1982,
respectively. The companies are principally engaged in the production of food
products in Canada and its distribution in Canada and the U.S.
c) Cash and Cash Equivalents (Bank Indebtedness)
Cash and cash equivalents (bank indebtedness) include cash on hand, amounts
due from and to banks, and any other highly liquid investments purchased with a
maturity of three months or less. The carrying amount approximates fair value
because of the short maturity of those instruments.
d) Other Financial Instruments
The carrying amount of the companies' accounts receivables and payables
approximates fair value because of the short maturity of these instruments.
e) Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is
determined on the first-in, first-out basis.
f) Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are amortized on the
basis over their estimated useful lives at the undernoted rates and methods:
<TABLE>
<S> <C> <C>
Equipment.................................................. 20% Declining
balance
Leasehold improvements..................................... 10% Straight-line
Vehicle.................................................... 30% Declining
balance
Computer equipment......................................... 30% Declining
balance
Office furniture........................................... 20% Declining
balance
</TABLE>
Amortization for assets acquired during the year are recorded at one-half of
the indicated rates, which approximates when they were put into use.
g) Income Taxes
The companies account for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
F-7
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h) Foreign Currency Translation
The companies maintain their books and records in Canadian dollars. Foreign
currency transactions are translated using the temporal method. Under this
method, all monetary items are translated into Canadian funds at the rate of
exchange prevailing at balance sheet date. Non-monetary items are translated at
historical rates. Income and expenses are translated at the rate in effect on
the transaction dates. Transaction gains and losses are included in the
determination of earnings for the year.
The translation of the financial statements from Canadian dollars ("CDN $")
into United States dollars is performed for the convenience of the reader.
Balance sheet accounts are translated using closing exchange rates in effect at
the balance sheet date and income and expenses accounts are translated using an
average exchange rate prevailing during each reporting period. No representation
is made that the Canadian dollar amounts could have been or could be, converted
into United States dollars at the rates on the respective dates and or at any
other certain rates. Adjustments resulting from the translation are included in
the cumulative translation adjustments in stockholders' equity.
i) Sales
Sales represent the invoiced value of goods supplied to customers. Sales are
recognized upon delivery of goods and passage of title to customers.
j) Government Assistance and Investment Tax Credits
Government assistance and investment tax credits are recorded on the accrual
basis and are accounted for as a reduction of the related current or capital
expenditures.
k) Net Income per Weighted Average Common Share
Net income per common share is computed by dividing net income for the year
by the weighted average number of common shares outstanding during the year.
l) Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
Accounts receivable......................................................................... 595,200 728,488
Less: Allowance for doubtful accounts....................................................... 16,990 10,907
--------- ---------
Accounts receivable, net.................................................................... 578,210 717,581
--------- ---------
--------- ---------
</TABLE>
F-8
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
3. INVENTORY
Inventory comprised the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
Raw materials....................................................................... 187,546 200,899
Finished goods...................................................................... 542,058 420,181
--------- ---------
729,604 621,080
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
Equipment............................................................................... 2,293,607 2,016,295
Leasehold improvements.................................................................. 339,652 325,729
Vehicle................................................................................. 51,339 46,841
Computer equipment...................................................................... 86,887 66,595
Office furniture........................................................................ 90,390 82,850
---------- ----------
Cost............................................................................ 2,861,875 2,538,310
---------- ----------
Less: Accumulated amortization
Equipment......................................................................... 1,274,178 1,016,282
Leasehold improvements............................................................ 122,805 87,131
Vehicle........................................................................... 44,890 42,564
Computer equipment................................................................ 51,828 52,393
Office furniture.................................................................. 57,311 48,825
---------- ----------
1,551,012 1,247,195
---------- ----------
Net..................................................................................... 1,310,863 1,291,115
---------- ----------
---------- ----------
</TABLE>
5. BANK INDEBTEDNESS
Bank indebtedness bears interest at the bank's prime rate plus 1 1/2% per
annum and represents an operating loan which revolves in multiples of $18,500.
The bank indebtedness is secured by an assignment of book debts, a general
security agreement, guarantees of the shareholder and directors of Excelle
Brands Food Corporation, a fixed charge on equipment, a pledge of inventory,
assignment of fire insurance, assignment of life insurance on the lives of the
directors, a charge against property of a director and a postponement of amounts
due to directors.
F-9
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
$ $
Accounts payable and accrued expenses comprise the following:
Trade payables........................................................................ 420,656 750,319
Accrued expenses...................................................................... 413,599 256,733
--------- ----------
834,255 1,007,052
--------- ----------
--------- ----------
</TABLE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C> <C> <C>
$ $
a) Ontario Development Corporation Loans
Ontario Development Corporation loan under the Food Industry Financial Assistance
Program. Effective on October 23, 1996 the loan is repayable in blended monthly
payments of $3,100 principal and interest at 8% per annum, due October, 1999....... 170,707 182,030
Ontario Development Corporation loan under the Food Industry Financial Assistance
Program. The loan is repayable in blended monthly payments of $1,600 principal and
interest at 6 1/2% per annum, due October, 1999.................................... 48,122 62,404
b) Business Development Bank Loan
Business Development Bank loan, repayable in blended monthly payments of $1,200
principal and interest at the floating commercial and industrial loan interest rate
plus 2 1/2% per annum, due August, 2001............................................ 67,372 --
c) Bank Term Loans
Commercial investment loan, repayable monthly, $1,000 principal plus interest at
the bank's prime rate plus 1 1/2% per annum, repaid in full during the year........ -- 910
Commercial investment loan, repayable monthly, $3,100 principal plus interest at
the bank's prime rate plus 1 1/2% per annum, due October, 1998..................... 68,043 100,110
d) Capital Loans
Capital loan, repayable monthly, $2,700 principal plus interest at the bank's prime
rate plus 1 1/2% per annum, due June, 2001......................................... 144,271 160,186
Capital loan, repayable monthly, $2,000 principal plus interest at the bank's prime
rate plus 1 1/2% per annum, due November, 2002..................................... 116,321 --
e) Accounts payable under settlement agreements, non-interest bearing, with monthly
payments of approximately $8,700 until January, 1999............................... 230,085 325,229
--------- ---------
844,921 830,869
Less: Current portion.............................................................. 253,716 231,846
--------- ---------
591,205 599,023
--------- ---------
--------- ---------
</TABLE>
F-10
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
7. LONG-TERM DEBT (CONTINUED)
f) Bank term loans are secured by the security as described in note 5.
g) Ontario Development Corporation loans are secured by a first and fixed
mortgage charge on specific equipment and a floating charge on all other assets.
h) Business Development Bank loan is secured by a general security
agreement, assignment of claims and an assignment of insurance on specific
assets.
i) Capital loan is secured by a second and fixed mortgage charge on specific
equipment and a postponement of amounts due to directors and an assignment of
life insurance on the life of a director.
j) Capital loan is secured by a first and fixed mortgage charge on specific
equipment and a floating charge on all other assets.
k) Future principal payment obligations are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
1997.................................................................................. -- 231,846
1998.................................................................................. 253,716 321,169
1999.................................................................................. 231,510 200,074
2000.................................................................................. 246,431 45,743
2001.................................................................................. 71,566 32,037
2002.................................................................................. 41,698 --
--------- ---------
844,921 830,869
--------- ---------
--------- ---------
</TABLE>
8. DUE TO DIRECTORS
The amounts due to directors are unsecured, bear interest at the directors'
effective borrowing rate, are without any specific repayment terms, and are not
expected to be repaid prior to February 1, 1998.
9. CAPITAL STOCK
AUTHORIZED
An unlimited number of the following classes of shares without par value
Class A Preference shares, 12% non-cumulative, non-participating,
non-voting, redeemable at the paid-up amount
Class B Special shares, non-cumulative, participating, non-voting,
redeemable at the paid-up amount
Common shares
ISSUED
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
$ $
200 Common shares........................................................................... 160 160
--- ---
--- ---
</TABLE>
F-11
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
10. RESEARCH AND DEVELOPMENT COSTS
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
$ $ $
Research and development costs are comprised of:
Expenses incurred.......................................................... 191,762 171,768 178,386
Less: Investment tax credits............................................... (178,939) (80,140) (118,603)
---------- --------- ----------
Net expense................................................................ 12,823 91,628 59,783
---------- --------- ----------
---------- --------- ----------
</TABLE>
11. UNUSUAL ITEMS
a) During the 1996 fiscal year, the companies settled certain past due
accounts payable to certain trade creditors resulting in a forgiveness of those
accounts, net of related expenses, in the amount of $557,415.
b) During the 1996 fiscal year, the companies aborted efforts at obtaining
new financing until settlement was reached with trade creditors. Accordingly,
deferred financing costs pertaining to these efforts, in the amount of $156,329,
of which $74,723 was incurred in 1995, were written off.
12. INCOME TAXES
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
$ $ $
a) Current 83,045 78 --
Deferred................................................................... 30,322 75,562 (5,600)
--------- --------- ---------
113,367 75,640 (5,600)
--------- --------- ---------
--------- --------- ---------
b) Current income taxes consists of:
Amount calculated at basic Federal and Provincial rates.................... 96,621 111,990 (30,186)
Increase (decrease) resulting from:
Application of losses carried forward from prior year................ -- (22,585) --
Operating loss for which no current income tax benefit is
recognized........................................................... -- -- 24,586
Investment tax credits............................................... -- (16,757) --
Permanent and other differences...................................... 16,746 2,992 --
Timing differences................................................... (30,322) (75,562) 5,600
--------- --------- ---------
83,045 78 --
--------- --------- ---------
--------- --------- ---------
</TABLE>
c) The companies have operating losses which can be used to reduce future
provincial taxable income. The potential tax benefits of the losses have been
recorded as a reduction of deferred taxes. The deductibility of these losses,
which amount to approximately $204,000, expires in 2002.
d) Deferred income taxes represent the tax benefits derived from timing
differences between amortization of property, plant and equipment charged to
operations and amounts deducted from taxable income.
F-12
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
13. SALES TO MAJOR CUSTOMERS
The breakdown of sales by geographic area is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<CAPTION>
$ $ $
<S> <C> <C> <C>
Canada............................................................ 8,843,699 7,103,089 7,016,717
United States of America.......................................... 739,817 642,882 538,520
----------- ----------- -----------
9,583,516 7,745,971 7,555,237
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
14. MINIMUM LEASE COMMITMENTS
Minimum payments under an operating lease for premises amount to $81,000,
exclusive of insurance and other occupancy charges. The lease expires June 30,
2000. The future minimum lease payments over the next four years are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
$ $ $
Payable during the following periods:
Within one year.............................................................. 81,586 78,319 109,449
Over 1 year but not exceeding 2 years........................................ 77,002 81,051 109,449
Over 2 years but not exceeding 3 years....................................... 77,002 76,497 109,449
Over 3 years but not exceeding 4 years....................................... 32,084 76,497 141,371
Over 4 years but not exceeding 5 years....................................... -- 31,874 164,173
--------- --------- ---------
267,674 344,238 633,891
--------- --------- ---------
--------- --------- ---------
</TABLE>
The companies have sub-leased a portion of the premises for approximately
$24,000 per annum in renewable one year terms for a period of three years.
15. COMPARATIVE FIGURES
Certain figures in the 1996 and 1995 financial statements have been
reclassified to conform with the basis of presentation used in the current year.
F-13
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
16. OTHER SUPPLEMENTAL INFORMATION
The following items were included in the statements of income:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
$ $ $
Amortization of property, plant and equipment............................ 285,320 230,776 254,576
Amortization of deferred charges......................................... -- -- 44,172
--------- --------- ---------
285,320 230,776 298,748
--------- --------- ---------
Operating lease rentals for rental premises.............................. 51,141 89,247 77,360
Interest expense on Bank indebtedness.................................... 26,891 33,984 40,157
Stockholders' loans...................................................... 14,696 17,241 14,965
Long-term debt........................................................... 35,537 35,008 23,059
--------- --------- ---------
77,124 86,233 78,181
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
REVIEW ENGAGEMENT REPORT
To the Board of Directors and Stockholders of
Excelle Brands Food Corporation/Intercorp Foods Ltd.
We have reviewed the interim combined balance sheet of Excelle Brands Food
Corporation/Intercorp Foods Ltd. (incorporated in Canada) as at April 30, 1997
and 1996 and the interim combined statements of earnings and retained earnings
and changes financial position for the three months ended April 30, 1997 and
1996. Our review was made in accordance with generally accepted standards for
review engagements and accordingly consisted primarily of enquiry, analytical
procedures and discussion related to information supplied to us by the
companies.
A review does not constitute an audit and consequently we do not express an
audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that these financial statements are not, in all material respects, in
accordance with generally accepted accounting principles.
Toronto, Ontario /s/ SCHWARTZ LEVITSKY FELDMAN
June 24, 1997 Chartered Accountants
F-15
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
INTERIM COMBINED BALANCE SHEETS
AS OF APRIL 30, 1997
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
ASSETS $ $
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Accounts receivable (note 2)....................................... 1,020,942 706,029
Investment tax credits recoverable................................. 201,320 157,746
Inventory (note 3)................................................. 967,187 743,789
Income taxes recoverable........................................... -- 15,062
Prepaid expenses and sundry assets................................. 136,450 69,172
--------- ---------
Total current assets............................................... 2,325,899 1,691,798
PROPERTY, PLANT AND EQUIPMENT (note 4)................................. 1,405,748 1,229,770
--------- ---------
Total assets........................................................... 3,731,647 2,921,568
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
1997 1996
$ $
---------- ----------
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 5)............................................................ 211,655 277,531
Accounts payable and accrued expenses (note 6)........................................ 1,565,713 1,043,040
Income taxes payable.................................................................. 8,985 9,850
Current portion of long-term debt..................................................... 244,531 233,786
---------- ----------
Total current liabilities............................................................. 2,030,884 1,564,207
LONG-TERM DEBT (note 7)................................................................. 549,547 564,206
DUE TO DIRECTORS (note 8)............................................................... 149,379 82,395
DUE TO PARENT COMPANY................................................................... -- 70,888
DEFERRED INCOME TAXES (note 12)......................................................... 119,726 87,320
---------- ----------
Total liabilities..................................................................... 2,849,536 2,369,016
---------- ----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 9).................................................................. 160 160
RETAINED EARNINGS....................................................................... 923,164 623,886
CUMULATIVE TRANSLATION ADJUSTMENTS...................................................... (41,213) (71,494)
---------- ----------
Total stockholders' equity............................................................ 882,111 552,552
---------- ----------
Total liabilities and stockholders' equity............................................ 3,731,647 2,921,568
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
INTERIM COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED APRIL 30
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
GROSS SALES............................................................................. 2,780,557 2,309,733
Trade expenditures.................................................................. 183,431 229,042
---------- ----------
NET SALES............................................................................... 2,597,126 2,080,691
Cost of sales....................................................................... 1,749,127 1,476,460
---------- ----------
GROSS PROFIT............................................................................ 847,999 604,231
---------- ----------
OPERATING EXPENSES
Selling............................................................................. 399,054 227,368
General and administrative.......................................................... 197,031 159,791
Research and development costs (note 10)............................................ 25,372 23,054
---------- ----------
Total operating expenses............................................................ 621,457 410,213
---------- ----------
OPERATING INCOME........................................................................ 226,542 194,018
INTEREST EXPENSE........................................................................ 19,926 20,739
AMORTIZATION............................................................................ 91,318 77,388
---------- ----------
INCOME BEFORE INCOME TAXES.............................................................. 115,298 95,891
Income taxes (note 12).............................................................. 36,145 22,055
---------- ----------
NET INCOME.............................................................................. 79,153 73,836
---------- ----------
---------- ----------
NET INCOME PER WEIGHTED AVERAGE
COMMON SHARE............................................................................ 395.77 369.18
---------- ----------
---------- ----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING............................................................... 200 200
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
INTERIM COMBINED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED APRIL 30
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
Cash flows from operating activities:
Net Income.............................................................................. 79,153 73,836
---------- ----------
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Amortization.......................................................................... 91,318 77,388
Loss on write off of deferred change.................................................. -- --
(Increase)/decrease in accounts receivable............................................ (468,459) 17,536
(Increase)/decrease in investment tax credits......................................... (23,495) (20,164)
(Increase)/decrease in inventory...................................................... (266,727) (117,356)
Decrease/(increase) in prepaid expenses............................................... (60,741) (29,326)
(Decrease)/increasein accounts payable and accrued expenses........................... 769,536 27,522
Increase in income taxes payable/recoverable.......................................... 3,368 22,175
Increase/(decrease) in deferred income taxes.......................................... -- --
---------- ----------
Total adjustments..................................................................... 44,800 (22,225)
Net cash (used in)/provided by operating activities................................... 123,953 51,611
Cash flows from investing activities:
Proceeds from disposal of property, plant and equipment............................... -- --
Purchases of property, plant and equipment............................................ (186,202) (16,273)
Additions to deferred charges......................................................... -- --
---------- ----------
Net cash used in investing activities................................................. (186,202) (16,273)
---------- ----------
Cash flows from financing activities:
(Repayment of)/proceeds from advances to director..................................... -- --
Repayment from parent company......................................................... -- --
Long-term debt borrowings/(repayments).............................................. (20,463) (39,778)
---------- ----------
Net cash (used in)/provided by financing activities................................... (20,463) (39,778)
---------- ----------
Effect of foreign currency exchange rate changes...................................... (18,311) (22,251)
---------- ----------
Net increase (decrease) in cash and cash equivalents.................................. (101,023) (26,691)
Cash and cash equivalents
Beginning of period................................................................. (110,632) (250,840)
---------- ----------
End of year......................................................................... (211,655) (277,531)
---------- ----------
---------- ----------
Income taxes paid (refunds received).................................................. -- (18,358)
---------- ----------
Interest paid......................................................................... 19,926 20,739
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
INTERIM COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED APRIL 30
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK RETAINED TRANSLATION
NUMBER OF AMOUNT EARNINGS ADJUSTMENTS
SHARES $ $ $
----------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Balance as of January 30, 1997................................. 200 160 844,011 (31,929)
Foreign currency translation................................. -- -- -- (9,284)
Net income for the period.................................... -- -- 79,153 --
--- --- --------- -----------
Balance as of April 30, 1997................................... 200 160 923,164 (41,213)
--- --- --------- -----------
--- --- --------- -----------
Balance as of January 30, 1996................................. 200 160 550,050 (45,445)
Foreign currency translation................................. -- -- -- (26,049)
Net income for the period.................................... -- -- 73,836 --
--- --- --------- -----------
Balance as of April 30, 1996................................... 200 160 623,886 (71,494)
--- --- --------- -----------
--- --- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION
These financial statements interim combined the accounts of two affiliated
companies. All material inter-company accounts and transactions have been
eliminated.
B) PRINCIPLE ACTIVITIES
The companies, Excelle Brands Foods Corporation and Intercorp Foods Ltd.,
were incorporated in Canada on February 7, 1987 and December 20, 1982,
respectively. The companies are principally engaged in the production of food
products in Canada and its distribution in Canada and the U.S.
C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks, and
any other highly liquid investments purchased with a maturity of three months or
less. The carrying amount approximates fair value because of the short maturity
of those instruments.
D) OTHER FINANCIAL INSTRUMENTS
The carrying amount of the companies' accounts receivable and payable
approximates fair value because of the short maturity of these instruments.
E) INVENTORY
Inventory is valued at the lower of cost and net realizable value. Cost is
determined on the first-in, first-out basis.
F) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and are amortized on the
basis over their estimated useful lives at the undernoted rates and methods:
<TABLE>
<S> <C> <C>
Equipment 20% Declining balance
Leasehold improvements 10% Straight-line
Vehicle 30% Declining balance
Computer equipment 30% Declining balance
Office furniture 20% Declining balance
</TABLE>
Amortization for assets acquired during the period are recorded at one-half
of the indicated rates, which approximates when they were put into use.
F-20
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G) INCOME TAXES
The companies account for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
H) FOREIGN CURRENCY TRANSLATION
The companies maintain their books and records in Canadian dollars. Foreign
currency transactions are translated using the temporal method. Under this
method, all monetary items are translated into Canadian funds at the rate of
exchange prevailing at balance sheet date. Non-monetary items are translated at
historical rates. Income and expenses are translated at the rate in effect on
the transaction dates. Transaction gains and losses are included in the
determination of earnings for the period.
The translation of the financial statements from Canadian dollars ("CDN $")
into United States dollars is performed for the convenience of the reader.
Balance sheet accounts are translated using closing exchange rates in effect at
the balance sheet date and income and expenses accounts are translated using an
average exchange rate prevailing during each reporting period. No representation
is made that the Canadian dollar amounts could have been or could be, converted
into United States dollars at the rates on the respective dates and or at any
other certain rates. Adjustments resulting from the translation are included in
the cumulative translation adjustments in stockholders' equity.
I) SALES
Sales represent the invoiced value of goods supplied to customers. Sales are
recognized upon delivery of goods and passage of title to customers.
J) GOVERNMENT ASSISTANCE AND INVESTMENT TAX CREDITS
Government assistance and investment tax credits are recorded on the accrual
basis and are accounted for as a reduction of the related current or capital
expenditures.
K) NET INCOME PER WEIGHTED AVERAGE COMMON SHARE
Net income per common share is computed by dividing net income for the
period by the weighted average number of common shares outstanding during the
period.
L) USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-21
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
$ $
Accounts receivable................................................... 1,037,099 713,491
Less: Allowance for doubtful accounts................................. 16,157 7,462
---------- ---------
Accounts receivable, net.............................................. 1,020,942 706,029
---------- ---------
---------- ---------
</TABLE>
3. INVENTORY
Inventory comprised the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
Raw materials........................................................... 240,723 255,663
Finished goods.......................................................... 726,464 488,126
--------- ---------
967,187 743,789
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
Equipment........................................................... 2,477,019 2,028,295
Leasehold improvements.............................................. 340,519 325,729
Vehicle............................................................. 51,339 46,865
Computer equipment.................................................. 88,525 66,938
Office furniture.................................................... 90,381 86,204
---------- ----------
Cost.............................................................. 3,047,780 2,554,201
---------- ----------
Less: Accumulated amortization
Equipment......................................................... 1,360,241 1,089,932
Leasehold improvements............................................ 122,805 93,138
Vehicle........................................................... 45,103 42,697
Computer equipment................................................ 52,055 53,128
Office furniture.................................................. 61,828 45,536
---------- ----------
1,642,032 1,324,431
---------- ----------
Net................................................................. 1,405,748 1,229,770
---------- ----------
---------- ----------
</TABLE>
5. BANK INDEBTEDNESS
Bank indebtedness bears interest at the bank's prime rate plus 1 1/2% per
annum and also comprises an operating loan which revolves in multiples of
$18,500. These are secured by an assignment of book
F-22
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
5. BANK INDEBTEDNESS (CONTINUED)
debts, a general security agreement, guarantees of the shareholder and directors
of Excelle Brands Food Corporation, a fixed charge on equipment, a pledge of
inventory, assignment of fire insurance, assignment of life insurance on the
lives of the directors, a charge against property of a director and a
postponement of amounts due to directors.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
Accounts payable and accrued expenses comprised the following:
Trade payable..................................................... 519,440 640,403
Accrued expenses.................................................. 1,046,273 402,637
---------- ----------
1,565,713 1,043,040
---------- ----------
---------- ----------
</TABLE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<C> <S> <C> <C>
$ $
a) Ontario Development Corporation Loans
Ontario Development Corporation loan under the Food Industry Financial Assistance
Program. Effective on October 23, 1996 the loan is repayable in blended monthly
payments of $3,100 principal and interest at 8% per annum, due October, 1999........ 160,731 180,996
Ontario Development Corporation loan under the Food Industry Financial Assistance
Program. The loan is repayable in blended monthly payments of $1,600 principal and
interest at 6 1/2% per annum, due October, 1999..................................... 40,576 61,647
b) Business Development Bank Loan
Business Development Bank loan, repayable in blended monthly payments of $1,200
principal and interest at the floating commercial and industrial loan interest rate
plus 2 1/2% per annum, due August, 2001............................................. 61,391 --
c) Bank Term Loans
Commercial Investment Loan, repayable monthly, $1,000 principal plus interest at the
bank's prime rate plus 1 1/2% per annum, repaid in full during the year............. -- 137
Commercial Investment Loan, repayable monthly, $3,100 principal plus interest at the
bank's prime rate plus 1 1/2% per annum, due October, 1998.......................... 53,653 91,769
</TABLE>
F-23
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
7. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
$ $
<C> <S> <C> <C>
d) Capital Loans
Capital loan, repayable monthly, $2,700 principal plus interest at the bank's prime
rate plus 1 1/2% per annum, due June, 2001.......................................... 134,159 161,527
Capital loan, repayable monthly, $2,000 principal plus interest at the bank's prime
rate plus 1 1/2% per annum, due November, 2002...................................... 149,161 --
e) Accounts payable under settlement agreements, non-interest bearing, with monthly
payments of approximately $8,700 until January, 1999................................ 194,408 301,916
--------- ---------
794,078 797,992
Less: Current portion............................................................... 244,531 233,786
--------- ---------
549,547 564,206
--------- ---------
--------- ---------
</TABLE>
f) Bank term loans are secured by the security as described in note 5.
g) Ontario Development Corporation loans are secured by a first and fixed
mortgage charge on specific equipment and a floating charge on all other assets.
h) Business Development Bank loan is secured by a general security
agreement, assignment of claims and an assignment of insurance on specific
assets.
i) Capital loan is secured by a second and fixed mortgage charge on
specific equipment and a postponement of amounts due to directors and an
assignment of life insurance on the life of a director.
j) Capital loan is secured by a first and fixed mortgage charge on specific
equipment and a floating charge on all other assets.
k) Future principal payment obligations are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
1997............................................................. -- 233,786
1998............................................................. 244,531 311,287
1999............................................................. 238,875 161,492
2000............................................................. 202,715 67,399
2001............................................................. 93,957 24,028
2002............................................................. 14,000 --
---------- ----------
794,078 797,992
---------- ----------
---------- ----------
</TABLE>
8. DUE TO DIRECTORS
The amounts due to directors are unsecured, bear interest at the directors'
effective borrowing rate, are without any specific repayment terms, and are not
expected to be repaid prior to April 1, 1998.
F-24
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
9. CAPITAL STOCK
Authorized
An unlimited number of the following classes of shares without par value
Class A Preference shares, 12% non-cumulative, non-participating,
non-voting, redeemable at the paid-up amount
Class B Special shares, non-cumulative, participating, non-voting,
redeemable at the paid-up amount
Common shares
Issued
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
$ $
200 Common shares............................................................... 160 160
</TABLE>
10. RESEARCH AND DEVELOPMENT COSTS
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
Research and development costs are comprised of:
Expenses incurred........................................................ 47,258 43,218
Less: Investment tax credits............................................. (21,886) (20,164)
--------- ---------
Net expense.............................................................. 25,372 23,054
--------- ---------
--------- ---------
</TABLE>
F-25
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
11. INCOME TAXES
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<C> <S> <C> <C>
$ $
a) Current............................................................ 36,145 16,156
Deferred........................................................... -- (5,899)
--------- ---------
36,145 22,055
--------- ---------
--------- ---------
b) Current income taxes consists of:
Amount calculated at basic Federal and Provincial rates............ 20,151 18,797
Increase (decrease) resulting from:
Application of losses carried forward from prior year............ -- --
Operating loss for which no current income tax benefit is
recognized....................................................... -- --
Investment tax credits........................................... -- --
Permanent and other differences.................................. 3,684 3,258
Timing differences............................................... 12,310 (5,899)
--------- ---------
36,145 16,156
--------- ---------
</TABLE>
c) Deferred income taxes represent the tax benefits derived from timing
differences between amortization of plant and equipment charged to
operations and amounts deducted from taxable income.
12. SALES TO MAJOR CUSTOMERS
The breakdown of sales by geographic area is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
Canada.............................................................. 2,013,157 1,596,656
United States of America............................................ 209,468 187,160
---------- ----------
2,222,625 1,783,816
---------- ----------
---------- ----------
</TABLE>
F-26
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
13. MINIMUM LEASE COMMITMENTS
Minimum payments under an operating lease for premises amount to keep
$81,000, exclusive of insurance and other occupancy charges. The lease expires
June 30, 2000. The future minimum lease payments over the next four years are as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
Payable during the following periods:
Within one year......................................................... 76,918 84,435
Over 1 year but not exceeding 2 years................................... 75,129 78,928
Over 2 years but not exceeding 3 years.................................. 75,129 77,093
Over 3 years but not exceeding 4 years.................................. 12,521 77,093
Over 4 years but not exceeding 5 years.................................. -- 12,849
--------- ---------
239,697 330,398
--------- ---------
--------- ---------
</TABLE>
The companies have sub-leased a portion of the premises for approximately
$24,000 per annum in renewable one year terms for a period of three years.
14. OTHER SUPPLEMENTAL INFORMATION
The following items were included in the statements of income:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
Amortization of property, plant and equipment.............................. 91,318 77,388
Amortization of deferred charges........................................... -- --
--------- ---------
91,318 77,388
--------- ---------
--------- ---------
Operating lease rentals for rental premises................................ 12,785 22,312
--------- ---------
--------- ---------
Interest expense on
Bank indebtedness........................................................ 4,094 6,422
Stockholders' loans...................................................... 3,674 4,310
Long-term debt........................................................... 12,158 10,007
--------- ---------
19,926 20,739
--------- ---------
</TABLE>
F-27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE AND REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary...............................
Risk Factors.....................................
Use of Proceeds..................................
Dividend Policy..................................
Capitalization...................................
Dilution.........................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations............
Business.........................................
Management.......................................
Principal Stockholders and Selling
Securityholders................................
Certain Transactions.............................
Description of Securities........................
Shares Eligible for Future Sale..................
Certain United States Federal Income Tax
Consideration..................................
Investment Canada Act............................
Underwriting.....................................
Legal Opinions...................................
Experts..........................................
Concurrent Offering..............................
Additional Information...........................
Indemnification for Securities Act Liabilities...
Financial Statements............................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS AFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. IN
ADDITION, DEALERS ARE OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTION.
INTERCORP EXCELLE INC.
1,000,000 SHARES OF COMMON STOCK
1,000,000 REDEEMABLE COMMON
STOCK PURCHASE WARRANTS
SHARPE CAPITAL, INC.
AEGIS CAPITAL CORP.
---------------------
PROSPECTUS
---------------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
PRELIMINARY PROSPECTUS DATED JULY 3, 1997
SUBJECT TO COMPLETION
PROSPECTUS
INTERCORP EXCELLE INC.
65,000 SHARES OF COMMON STOCK
This Prospectus relates to 65,000 shares of common stock, no par value (the
"Common Stock") of INTERCORP EXCELLE INC. (the "Company") that may be sold by
the selling securityholders named herein (the "Selling Securityholders"). See
"Selling Securityholders". The 65,000 shares of Common Stock being offered
hereby are issued in connection with the acquisition by the Company of Excelle
Brands Food Corporation and Intercorp Foods Limited completed in April 1997. The
Company will not receive any proceeds from the sale of the Company Stock. The
expenses in connection with the preparation of this Prospectus and the
registration of the Common Stock will be paid by the Company.
The Selling Securityholders may sell the shares of Common Stock from time to
time directly to purchasers, or through broker-dealers who may receive
compensation in the form of discounts or commissions from the Selling
Securityholders or purchasers. Sales of the shares of Common Stock may be
effected by broker-dealers in ordinary brokerage transactions or block
transactions on the Nasdaq SmallCap Market, through sales to one or more dealers
who may resell as principals, in privately negotiated transactions or otherwise,
at the market price prevailing at the time of sale, a price related to such
prevailing market price or at a negotiated price. Usual and customary or
specifically negotiated brokerage fees may be paid by the Selling
Securityholders in connection therewith. To the Company's knowledge, none of the
Selling Securityholders has entered into any underwriting agreements. The
Company has offered, by separate Prospectus dated the date hereof, 1,000,000
shares of Common Stock and 1,000,000 Redeemable Common Stock Purchase Warrants
(the "Company Offering").
Prior to the Company Offering, there has been no public market for the
Common Stock and Warrants and no assurance can be given that any such market
will develop upon completion of the Company Offering. Application has been made
to have the Common Stock and Warrants included for quotation on the Nasdaq
SmallCap Market under the symbols "INEX" and INEXW," respectively, and for
listing on the Boston Stock Exchange under the symbols "INX" and "INXW,"
respectively. The initial public offering price of the Common Stock and the
Warrants and the exercise price and other terms of the Warrants have been
determined by negotiation between the Company and the Underwriter and do not
necessarily bear any relation to the Company's earnings, assets, book value, net
worth or any other recognized criteria of value. See "Underwriting".
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
COMMENCING ON PAGE 7 AND "DILUTION" ON PAGE 16.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
The Selling Securityholders may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Act") and any profits
realized by them may be deemed to be underwriting commissions. Any
broker-dealers that participate in the distribution of the shares of Common
Stock also may be deemed to be "underwriters," as defined in the Act, and any
commissions or discounts paid to them, or any profits realized by them upon the
resale of any securities purchased by them as principals, may be deemed to be
underwriting commissions or discounts under the Act. The sale of the Common
Stock by the Selling Securityholders is subject to the prospectus delivery
requirements of the Act. The Selling Securityholders are responsible for payment
of brokerage commissions and discounts incurred in connection with the sale of
the Common Stock. The Company and the Selling Securityholders have agreed to
indemnify each other against certain liabilities, including liabilities under
the Act.
2
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
THE SELLING SECURITYHOLDERS' OFFERING
<TABLE>
<S> <C>
Securities Offered................ 65,000 shares of Common Stock, no par value. See
"Description of Securities".
Common Stock Outstanding(1)....... 4,075,000
Risk Factors...................... The securities offered hereby involve a high degree of
risk and immediate substantial dilution to public
investors. See "Risk Factors" and "Dilution".
Nasdaq Symbol(2).................. Common Stock: INEX
BSE Symbol(2)..................... Common Stock: INX
</TABLE>
- ------------------------
(1) Does not include 500,000 shares of Common Stock reserved for issuance upon
the options available for future grant under the Company's stock option plan
(the "Plan") 200,000 of which have been granted. See "Management--Stock
Option Plan".
(2) The proposed Nasdaq and Boston Stock Exchange trading symbols do not imply
that a liquid and active market will be developed or sustained for the
Common Stock upon completion of this offering or the Company Offering.
6
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale by the
Selling Securityholders of the shares of Common Stock.
15
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
This page intentionally left blank.
16
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
This page intentionally left blank.
38
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
This page intentionally left blank.
39
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
This page intentionally left blank.
40
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
LEGAL OPINIONS
Certain legal matters relating to Canadian law, including the validity of
the issuance of the Common Stock and Warrants of the Company Offering, will be
passed upon for the Company by Wildeboer Rand Thomson Apps & Dellelce. Certain
legal matters in connection with the Company Offering will be passed upon for
the Company by its United States counsel, Gersten, Savage, Kaplowitz, Fredericks
& Curtin, LLP, 101 East 52nd Street, New York, New York 10022. Certain legal
matters will be passed upon for the Underwriters in the Company Offering by
Singer Zamansky LLP, 40 Exchange Place, New York, New York 10005.
EXPERTS
The combined financial statements of Excelle Brand Foods Corporation and
Intercorp Foods Ltd. at January 31, 1997, and for each of the two fiscal years
in the period ended January 31, 1996 and 1995, appearing in this Prospectus and
Registration Statement have been audited by Schwartz Levitsky Feldman, Chartered
accountants, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
CONCURRENT OFFERING
The registration statement of which this Prospectus forms a part also covers
1,000,000 shares of Common Stock and 1,000,000 common stock purchase warrants
being offered by the Company ("Company Offering").
41
<PAGE>
[ALTERNATIVE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE AND REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.............................
Risk Factors...................................
Use of Proceeds................................
Dividend Policy................................
Capitalization.................................
Dilution.......................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.....................................
Business.......................................
Management.....................................
Certain Transactions...........................
Principal Stockholders and Selling
Securityholders..............................
Description of Securities......................
Shares Eligible for Future Sale................
Certain United States Federal Income Tax
Consideration................................
Investment Canada Act..........................
Legal Opinions.................................
Experts........................................
Additional Information.........................
Indemnification for Securities Act
Liabilities..................................
Financial Statements...........................
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS AFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. IN
ADDITION, DEALERS ARE OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTION.
INTERCORP EXCELL INC.
65,000 SHARES OF COMMON STOCK
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The by-laws of the Company provide that the Company shall indemnify
directors and officers of the Company. The pertinent section of Canadian law is
set forth below in full. In addition, upon effectiveness of this registration
statement, management intends to obtain officers and directors liability
insurance.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission (the
"Commission") with respect to the effect of any indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act").
Section 136 of the Canadian Business Corporation Act provides as follows:
(1) INDEMNIFICATION OF DIRECTORS-A corporation may indemnify a director
or officer of the corporation, a former director or officer of the
corporation or a person who acts or acted at the corporation's request as a
director or officer of a body corporate of which the corporation is or was a
shareholder or creditor, and his or her heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, reasonably incurred by him or her in
respect of any civil, criminal or administrative action or proceeding to
which he or she is a party by reason of being or having been a director or
officer of such corporation or body corporate, if,
(a) he or she acted honestly and in good faith with a view to the
best interests of the corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he or she has reasonable grounds
for believing that his or her conduct was lawful.
(2) INDEM.-A corporation may, with the approval of the court, indemnify
a person referred to in subsection (1) in respect of an action by or behalf
of the corporation or body corporate to procure a judgment n its favor, to
which the person is made a party by reason of being or having been a
director or an officer of the corporation or body corporate, against all
costs, charges and expenses reasonably incurred by the person in connection
with such action if he or she fulfills the conditions set out in clauses
(1)(a) and (b).
(3) IDEM.-Despite anything in this section, a person referred to in
subsection (1) is entitled to indemnity from the corporation in respect of
all costs, charges and expenses reasonably incurred by him in connection
with the defense of any civil, criminal or administrative action or
proceeding to which he or she is made a party by reason of being or having
been a director or officer of the corporation or body corporate, if the
person seeking indemnity;
(a) was substantially successful on the merits in his or her defense
of the action or proceeding; and
(b) fulfills the conditions set out in clauses (1)(a) and (b).
(4) LIABILITY INSURANCE-A corporation may purchase and maintain
insurance for the benefit of any person referred to in subsection (1)
against any liability incurred by the person,
(a) in his or her capacity as a director or officer of the
corporation, except where the liability relates to the person's failure
to act honestly and in good faith with a view to the best interests of
the corporation; or
II-1
<PAGE>
(b) in his or her capacity as a director or officer of another body
corporate where the person acts or acted in that capacity at the
corporation's request, except where the liability relates to the person's
failure to act honestly and in good faith with a view to the best
interests of the body corporate.
(5) APPLICATION TO COURT-A Corporation or a person referred to in
subsection 91) may apply to the court for an order approving an indemnity
under this section and the court may so order and make any further order it
thinks fit.
(6) IDEM-Upon application under subsection (5), the court may order
notice to be given to any interested person and such person is entitled to
appear and be heard in person or by counsel.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses to be paid by the
Company in connection with the issuance and distribution of the securities being
registered:
<TABLE>
<S> <C>
SEC Registration Fee........................................................... $ 4,333.94
NASD Filing Fee................................................................ 1,897.70
Nasdaq Listing Fees*........................................................... 15,000.00
BSE Listing Fees*.............................................................. 10,000.00
Printing Engraving Expenses*................................................... 75,000.00
Legal Fees and Expenses*....................................................... 125,000.00
Accounting Fees and Expenses*.................................................. 60,000.00
Blue Sky Fees and Expenses*.................................................... 17,500.00
Transfer Agent and Registrar Fees and Expenses*................................ 3,500.00
Non-accountable Expense Allowance.............................................. 153,000.00
Miscellaneous*................................................................. 9,768.36
Total.................................................................... $475,000.00
</TABLE>
- ------------------------
*estimate
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years the Company has issued securities to a limited
number of persons as described below. Except as indicated, there were no
underwriters involved in the transactions and there were no underwriting
discounts or commissions paid in connection therewith.
In April 1997, the Company issued an aggregate of 2,900,000 shares of its
Common stock to Arnold Unger, Renee Unger, Lori Gutmann, Alysee Unger and Karen
Unger in exchange for all of the outstanding capital stock of Kalmath
Investments Limited and Intercorp Foods Ltd. The issuance was exempt from
registration under Section 4(2) of the Act.
In May 1997, the Company sold to 26 investors an aggregate of $625,000 12%
promissory notes, 175,000 shares of Common Stock and 175,000 redeemable common
stock purchase warrants. The warrants are exercisable to purchase 175,000 shares
of Common Stock at $3.75 per share or are exchangeable for warrants identical to
the warrants being offered by the Company in the Offering. The Underwriters
placed the securities and received 10% placement agent fees. The sale of
securities was exempt from registration pursuant to Rule 506 under Section 4(2)
of the Act.
In May 1997, the Company granted options to purchase an aggregate 200,000
shares of Common Stock under its 1997 Stock Option Plan to five of its officers
and directors. The transaction was exempt from registration under Section 4(2)
of the Act.
II-2
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
1.2 Form of Selected Dealers Agreement*
1.3 Form of Agreement Among Underwriters*
3.1 Articles of Incorporation of the Registrant*
3.2 By-laws of Registrant*
4.1 Form of Underwriters' Warrant*
4.2 Form of Warrant Agreement*
4.3 Specimen Common Stock Certificate*
4.4 Specimen Redeemable Common Stock Purchase Warrant Certificate*
5.1 Opinion of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP*
5.2 Opinion of Wildeboer Rand Thomson Apps & Dellelce*
10.1 Form of Financial Advisory Agreement with Underwriters*
10.2 1997 Stock Option Plan*
10.3 Lease of Company's Facilities*
10.4 Employment Agreement with Arnold Unger*
10.5 Employment Agreement with Renee Unger*
10.6 Business Development Bank of Canada Note*
10.7 National Bank of Canada Revolving Demand Credit Facility*
21.1 List of Subsidiaries of Registrant*
23.1 Consent of Schwartz Levitsky Feldman, independent auditors
23.2 Consent of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP (incorporated into
Exhibit 5.1)*
23.3 Consent of Wildeboer Rand Thomson Apps & Dellelce*
</TABLE>
- ------------------------
*to be filed by amendment.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to any charter provision, by-law, contract arrangements,
statute, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the small business issuer
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (i)To include any
Prospectus required by section 10(a)(3) of the Act; (ii)To reflect in the
Prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement; (iii)To include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
II-3
<PAGE>
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the Offering of
such securities at that time shall be deemed to be the initial bona fide
Offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(4) For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of Prospectus
filed by the small business issuer under Rule 424(b)(1), or (4) or 497(h),
under the Act as part of this registration statement as of the time the
Commission declared it effective.
(5) For determining any liability under the Act, treat each
post-effective amendment that contains a form of Prospectus as a new
registration statement at that time as the initial bona fide Offering of
those securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form SB-2 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Province of
Ontario, Canada on July 2, 1997.
<TABLE>
<S> <C>
INTERCORP EXCELLE INC.
By: /s/ ARNOLD UNGER By: /s/ RENEE UNGER
---------------------------------------- ----------------------------------------
Arnold Unger Renee Unger
EXECUTIVE OFFICER PRESIDENT
</TABLE>
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
We, the undersigned officers and directors of INTERCORP EXCELLE INC. hereby
severally constitute and appoint Arnold Unger , our true and lawful
attorney-in-fact and agent with full power of substitution for us and in our
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and all documents
relating thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing necessary or advisable to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ ARNOLD UNGER Co-Chairman, Chief
- ------------------------------ Executive Officer July 2, 1997
Arnold Unger
/s/ RENEE UNGER Co-Chairman, President
- ------------------------------ July 2, 1997
Renee Unger
Director, Chief Operating
/s/ FRED BURKE Officer, Chief Financial
- ------------------------------ Officer/Principal July 2, 1997
Fred Burke Accounting Officer,
Secretary
/s/ LORI GUTMANN Director
- ------------------------------ July 2, 1997
Lori Gutmann
/s/ ALYSEE UNGER Director
- ------------------------------ July 2, 1997
Alysee Unger
Director
- ------------------------------
John Rothschild
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
1.2 Form of Selected Dealers Agreement*
1.3 Form of Agreement Among Underwriters*
3.1 Articles of Incorporation of the Registrant*
3.2 By-laws of Registrant*
4.1 Form of Underwriters' Warrant*
4.2 Form of Warrant Agreement*
4.3 Specimen Common Stock Certificate*
4.4 Specimen Redeemable Common Stock Purchase Warrant Certificate*
5.1 Opinion of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP*
5.2 Opinion of Wildeboer Rand Thomson Apps & Dellelce*
10.1 Form of Financial Advisory Agreement with Underwriters*
10.2 1997 Stock Option Plan*
10.3 Lease of Company's Facilities*
10.4 Employment Agreement with Arnold Unger*
10.5 Employment Agreement with Renee Unger*
10.6 Business Development Bank of Canada Note*
10.7 National Bank of Canada Revolving Demand Credit Facility*
21.1 List of Subsidiaries of Registrant*
23.1 Consent of Schwartz Levitsky Feldman, independent auditors
23.2 Consent of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP (incorporated into
Exhibit 5.1)*
23.3 Consent of Wildeboer Rand Thomson Apps & Dellelce*
</TABLE>
- ------------------------
* to be filed by amendment.
<PAGE>
EXHIBIT 23.1
CONSENT OF CHARTERED ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated March 12, 1997 and June 24, 1997 in the
Registration Statement (Form SB-2) and related Prospectus of Intercorp Excelle
Inc. for the registration of 1,000,000 shares of its common stock and 1,000,000
redeemable common stock purchase warrants.
______/s/ SCHWARTZ LEVITSKY FELDMAN_____
SCHWARTZ LEVITSKY FELDMAN
July 2, 1997
Toronto, Ontario
